McCain's Plan to End Oil Crisis

[editec]

Quote:
Nobody is going to buy anything if the costs will be lower tomorrow.

Better notify the computer and electronics industries before they go bankrupt!

Ha! Excellent retort, Von Bigmeat.

Yes, I should have taken the time to mitigate that general rule, but listing the exceptions to that general rule (as in your example) is asking a bit much in this venue, agreed?

:
Nobody can afford to borrow money if the dollars they have to pay back tomorrow are wildly more valuable than the dollars they borrowed yesterday, either.

Not really, it's just another factor to consider when markets of borrowers and lenders set the interest rate. If money is slowly becoming more valuable for everyone, then we would expect banks to have lower stated interest rates* than they do now, which was the case in the 1800's.

Please no NOT crucify American farmers on that cross of gold, Von bigmeat.

Nuf said?

* Stated interest rates: The actual number quoted by the bank. As opposed to the real interest rate, which takes inflation/deflation into consideration. ie 3% interest rate + 2% deflation = 5% real interest rate.

True... Now what happens when the amount of new good and services is being balanced against a static amount of gold?

Do you suppose the banks will charge negative rates of interest to lenders to reflect the fact that the dollars repaid are much much more valuable than the dollars they loaned out?

(I mean it could happen, I suppose, but it would take a serious change in customary expectations from the banking community)

There are different types of deflation just like there are different types of inflation. The slow, steady decline of prices due to productivity improvements and technological breakthroughs (for example, mass-produced bread ) is a good thing. That's how the standard of living increases.

True, but we were talking about deflation in a SPECIFIC circumstance...one where we pegged the amount of specie in circulation to a static amount of gold in the vaults in a scoiety where production and population was increasing the amount of good and services.

 

[Paulie]

An ounce of gold buys about roughly the same amount of bread today it did 5000 years ago. It's a great PROTECTOR of wealth, but a LOUSY way to ACCUMULATE wealth.

Why do you keep trying to tell me something I already know? When have I ever said Gold is a good accumulative investment? I invest in gold and silver to protect my wealth. I have foreign equities in my portfolio right now to earn gains, and I've been averaging 7%.

What a shame that you think the Dollar is going to come back up. I hope you don't have the majority of your portfolio allocated to USD denominated stocks.

 

[Toro]

I think the dollar is bottoming against most of the major currencies.

 

[Zoomie1980]

That's true, but

The real price of gold isn't that much different over the past 400 years. The technological innovations to bring more gold out of the ground has not been fast enough to offset the rate of debasement of the currency.

If it were true that bread priced in gold has not changed, that would mean the technological improvements in food production have trended at rates similar to gold mining.

We know, however, this not to be the case. Around 1900, ~40-45% of Americans worked on a farm. Today it is ~3-4%. However, (and I cannot remember the exact number) food output is ~30x higher since the turn of the last century.

Also, the average American family spends far less of their income on food than a century ago. Again, I cannot remember the exact numbers, but in 1900, about 50% of income went towards food. Today, it is 10-15%. This is due in part to rapid technological adoption.

Think about it. Most loaves of bread in this country are made in a vast manufacturing process. 100 years ago, almost all bread was made locally and the cost of inputs was much higher relatively because the country had no where near the transportation infrastructure today nor the efficiencies in farming.

It's a generality, a statement that gold is NOT a wealth building instrument but rather a wealth PRESERVATION instrument. In GENERAL TERMS, an ounce of gold buys about the same amount of goods and services available at the time that is has since the dawn of civilization.

 

[editec]

I think the dollar is bottoming against most of the major currencies.

Agreed.

The Fed is hinting that they're going to increase rates.

 

[Zoomie1980]

Why do you keep trying to tell me something I already know? When have I ever said Gold is a good accumulative investment? I invest in gold and silver to protect my wealth. I have foreign equities in my portfolio right now to earn gains, and I've been averaging 7%.

What a shame that you think the Dollar is going to come back up. I hope you don't have the majority of your portfolio allocated to USD denominated stocks.

The dollar IS coming back. It has already found it's bottom. It may stay there for the duration of this business down cycle, but you damned well right I am. The dollar is CHEAP now. Time to begin ACCUMULATING dollar based assets and DUMPING Euro and Yen based ones. The Euro is a good as it is going to get for many years now. The Euro was YESTERDAY's hot currency. Tomorrow's is the dollar, as are US stocks.

And good news, Congress appears poised to begin considering legislation designed to flush most all the speculators out of the oil market. It is the only energy based issue Republicans and Democrats have broad agreement on. Sen Dorgan of N Dakota today on Fox news announced the almost certainty that Congress is going to act to squash the speculation by hedge funds and other financial houses. They did the same 18 years ago in grain markets with very good effect.

 

[Annie]

I hope the dollar is on the way up. I'm interested though, did anyone notice that the Republicans on the talk shows this morning were pushing for drilling?

 

[Paulie]

Runaway SPECULATION is the cause of oil prices, not supply, not demand, not the dollar.

Do you not understand why there is the speculation to begin with? It's BECAUSE of those things you say are not the culprit. It's not just the Dollar either, it's all fiat currencies. They're all depreciating. Commodities have always been the go-to during times of currency depreciation because they're a sound investment.

I allocated part of my portfolio to Oil a little while back, because of those fundamentals. In doing so, I then became a speculator.

It's the same thing as the run to gold. When currencies are down, investors run to commodities, plain and simple.

Unless you can explain some other reason why such a supposedly high percentage of oil investment is speculation. I'd sure love to hear it.

And it amazes me that a supposed free market conservative would advocate the federal government intervening and stopping speculation. Speculation is a normal market function. Why should it not be allowed? Why should someone not be allowed to allocate their Dollars to a more sound investment while the currency is depreciating?

Should they stop gold speculation as well? Because when investing in, say, GLD or SLV, you are not taking physical ownership of the metals.

 

[Paulie]

The Fed is hinting that they're going to increase rates.

I'll believe it when I see it.

A band-aid though, if you ask me.

 

[editec]

Quote:
Originally Posted by editec
The Fed is hinting that they're going to increase rates.

I'll believe it when I see it.

A band-aid though, if you ask me.

Agreed mostly.

I'm not sure anything the Fed does now will be effective either way.

The Fed's quiver seems to be -- at least for now -- temporarily empty.

The markets are now responding to things other than the discount rates .. things like: the trade imbalance; the recession that dare not speak its name; national debt; the real estate crises; the aging of America; looming pension funding problems, and so forth.

There was a time when it almost didn't matter how badly America screwed itself. Investing here still looked safer than anyplace else.

But the times they are a changin.

 

[BaronVonBigmeat]

Yes, I should have taken the time to mitigate that general rule, but listing the exceptions to that general rule (as in your example) is asking a bit much in this venue, agreed?

Well, my point was basically this: if people will purchase luxury frills even though they are dropping in price (which is what most electronic gizmos represent, let's face it), then surely they will also continue to purchase things like housing, clothing, cars, etc.

Please no NOT crucify American farmers on that cross of gold, Von bigmeat.

Nuf said?

The farmers in the 1800's were facing a situation where they had like ten years of unprecedented profits, so many moved west and started farming on borrowed money. Then the price of grain collapsed. Naturally, they wanted cheap money (silver, back then) just like today's subprime borrowers want it. That doesn't mean it's a good idea.

Do you suppose the banks will charge negative rates of interest to lenders to reflect the fact that the dollars repaid are much much more valuable than the dollars they loaned out?

No, historically banks charged something like 3% ~ 4% interest. Which combined with the roughly 2% deflation, gives you a real interest rate of 5 or 6 percent.

Anyway, this is all besides the point. Gold isn't strictly necessary. You just need something which is fairly stable. Milton Friedman wanted monetary policy run by a laptop computer, which would automatically increase the money supply 1 or 2 percent per year. As opposed to the 15% per year or whatever we're running now.

The problem with a government gold standard is the same problem with a government fiat standard: the government. They can obviously cheat on a fiat standard. But they can also cheat on a gold standard, as most european countries did during and after WWI. The best thing would be to eliminate legal tender laws, eliminate the requirement to pay taxes in federal reserve notes, and let the market decide which currency it will use.

 

[Zoomie1980]

Do you not understand why there is the speculation to begin with? It's BECAUSE of those things you say are not the culprit. It's not just the Dollar either, it's all fiat currencies. They're all depreciating. Commodities have always been the go-to during times of currency depreciation because they're a sound investment.

I allocated part of my portfolio to Oil a little while back, because of those fundamentals. In doing so, I then became a speculator.

It's the same thing as the run to gold. When currencies are down, investors run to commodities, plain and simple.

Unless you can explain some other reason why such a supposedly high percentage of oil investment is speculation. I'd sure love to hear it.

And it amazes me that a supposed free market conservative would advocate the federal government intervening and stopping speculation. Speculation is a normal market function. Why should it not be allowed? Why should someone not be allowed to allocate their Dollars to a more sound investment while the currency is depreciating?

Should they stop gold speculation as well? Because when investing in, say, GLD or SLV, you are not taking physical ownership of the metals.

The primary purpose of commodity futures markets ARE NOT FOR SPECULATION. Their purpose is to allow producers, consumers and shippers to protect their positions in the actual commodity. Small amounts of speculation are helpful is providing liquity but are DESTRUCTIVE when they skew the market away from it's basic supply/demand/cost to produce/ship fundamentals. And when you take the price to produce, transport, store and deliver and add in traditional profit, THAT is the TRUE PRICE of a commodity that is obeying fundamentals. For oil that price today is roughly $45-50 a barrel. So that is $80 of PURE SPECULATION. It tends to ruin the market for those that actually have to deal in the physical commodity.

The futures market has NOTHING to do with "free markets". It provides a service for those that are IN THE BUSINESS of the commodity to STABILIZE the market, not make it volatile. If you want to deal in oil, BUY AN OIL WELL, or invest in a tanker, or buy stock in an infrastructure producer.

ALL futures markets should TIGHTLY regulated to keep an OVERABUNDANCE of speculation OUT. Because it basically subverts the very purpose of a market.

And the main reason oil has run to insane prices is the very same investment houses that got punked with mortgage securities have rushed, en-masse into this and other markets to try and make something back and in doing so have completely subverted those markets.

And thankfully Congress is poised to finally act to force the speculators out of a market they have no business being in. The legislation I have seen will put strick limits on the daily moves and will literally cut the number of contracts per period roughly IN HALF and give preferential treatment to those who actually deal in the physical commodity.....the way it SHOULD BE.

Again, if you want oil, buy some resource rights to some land or buy a well, but stay out of where you don't belong, which is in a market where you have no intent to take or make a delivery.

And I believe in free markets to a point. And point is when excesses begin to take over, be it monopolistic pressure, or run away speculation, or predetary lending, or anything else that forces markets to begin ignoring their economic fundamentals.

 

[editec]

The problem with a government gold standard is the same problem with a government fiat standard: the government.

Yes, a sentiment I expressed previously in this thread.

The farmers in the 1800's were facing a situation where they had like ten years of unprecedented profits, so many moved west and started farming on borrowed money. Then the price of grain collapsed. Naturally, they wanted cheap money (silver, back then) just like today's subprime borrowers want it. That doesn't mean it's a good idea.

It would have been a good idea, then.

There wasn't enough money in circulation, simple as that.

 

[Paulie]

The primary purpose of commodity futures markets ARE NOT FOR SPECULATION. Their purpose is to allow producers, consumers and shippers to protect their positions in the actual commodity. Small amounts of speculation are helpful is providing liquity but are DESTRUCTIVE when they skew the market away from it's basic supply/demand/cost to produce/ship fundamentals. And when you take the price to produce, transport, store and deliver and add in traditional profit, THAT is the TRUE PRICE of a commodity that is obeying fundamentals. For oil that price today is roughly $45-50 a barrel. So that is $80 of PURE SPECULATION. It tends to ruin the market for those that actually have to deal in the physical commodity.

The futures market has NOTHING to do with "free markets". It provides a service for those that are IN THE BUSINESS of the commodity to STABILIZE the market, not make it volatile. If you want to deal in oil, BUY AN OIL WELL, or invest in a tanker, or buy stock in an infrastructure producer.

ALL futures markets should TIGHTLY regulated to keep an OVERABUNDANCE of speculation OUT. Because it basically subverts the very purpose of a market.

And the main reason oil has run to insane prices is the very same investment houses that got punked with mortgage securities have rushed, en-masse into this and other markets to try and make something back and in doing so have completely subverted those markets.

And thankfully Congress is poised to finally act to force the speculators out of a market they have no business being in. The legislation I have seen will put strick limits on the daily moves and will literally cut the number of contracts per period roughly IN HALF and give preferential treatment to those who actually deal in the physical commodity.....the way it SHOULD BE.

Again, if you want oil, buy some resource rights to some land or buy a well, but stay out of where you don't belong, which is in a market where you have no intent to take or make a delivery.

And I believe in free markets to a point. And point is when excesses begin to take over, be it monopolistic pressure, or run away speculation, or predetary lending, or anything else that forces markets to begin ignoring their economic fundamentals.

I can understand your point. But you still seem to be ignoring the reason why the speculation in oil exists to begin with. The major speculators didn't just all secretly meet and plot a price fix by flooding the oil futures long, to jack the price up and take massive profits. There's a REASON why there is this run to oil, and it's because of the fundamentals I've been trying to explain. The speculators saw oil going high because of weak fiat currencies around the world, mainly the USD. The same reason precious metals speculators are running to those. There's also the geo-political uncertainty that exists right now, along with the whole idea of "Peak Oil". No one can be sure if Iran is the next military target, but if they happen to be, oil is going to skyrocket. And that's just another reason for the speculation. Please rebut if you disagree, I find this discussion to be very interesting.

And I didn't invest in oil futures, just so you know. My oil position is ticker USO. But my primary reason for doing so is speculation that oil is going to continue to rise, due to the fundamentals I've mentioned.

 

[Zoomie1980]

I can understand your point. But you still seem to be ignoring the reason why the speculation in oil exists to begin with. The major speculators didn't just all secretly meet and plot a price fix by flooding the oil futures long, to jack the price up and take massive profits. There's a REASON why there is this run to oil, and it's because of the fundamentals I've been trying to explain. The speculators saw oil going high because of weak fiat currencies around the world, mainly the USD. The same reason precious metals speculators are running to those. There's also the geo-political uncertainty that exists right now, along with the whole idea of "Peak Oil". No one can be sure if Iran is the next military target, but if they happen to be, oil is going to skyrocket. And that's just another reason for the speculation. Please rebut if you disagree, I find this discussion to be very interesting.

And I didn't invest in oil futures, just so you know. My oil position is ticker USO. But my primary reason for doing so is speculation that oil is going to continue to rise, due to the fundamentals I've mentioned.

There's no "fundamentals" involved at all. Now rare-earths have gone up about the same as oil in the past two years but in most of those cases that is pure supply/demand/cost to produce and ship, and there is very little to no speculation involved at all in those markets. Yes, currency problems, political unrest, and fears of future supplies dwindling with ever increasing demand fuel the speculation. But it has become EXTREME and EXCESSIVE and completely out of control to the point large firms are artificially putting upward pressure on prices to protect positions. We saw the exact same thing in soybeans in 1990 and in cotton in 1998. In both cases, Congress acted and the speculators were forced to fly the coop.

And oil is not just another commodity, it is a vital part of our national security, and as such it has become as important a national security issue as an economic issue. In 2003 there was about $16,000,000,000 of cash in oil market, today $260,000,000,000!!! It has gotten beyond insane to pure, unadulterated MADNESS and Congress is going to step in. I suspect speculators will fly the coop even before then as many are going to investigated for racketeering and illegal market manipulation. The political climate has finally begun a laser-beam focus on runaway speculation and they are going to be looking for witches to burn. And it's an easy hunt.

As for all the reasons behind bets on oil almost all are flat out WRONG. Oil is NOT in short supply, it never has been, and even if you believe in Peak Oil it will be a decade or more before we truly begin to see a honest shortfall. The dollar's fall is largely done. And as for geo-political concerns the Middle East has seen MUCH more unrest in the past 40 years than it sees today. Iraq has settled down considerably in the past year, as has Nigeria and Chavez has been very quiet for some time. Iran is NOT going to be a target of anything any time soon other than some sanctions if they don't stop their nuclear program, and they cannot afford to stop oil shipments as their economy is already bankrupt with oil be their only source of national income. So no, the continuing run on speculation is now nothing more than a panic driven frenzy by large investment firms that see the same thing happening with their oil bets they just saw happen with their housing bets...

 

[Paulie]

There's no "fundamentals" involved at all. Now rare-earths have gone up about the same as oil in the past two years but in most of those cases that is pure supply/demand/cost to produce and ship, and there is very little to no speculation involved at all in those markets. Yes, currency problems, political unrest, and fears of future supplies dwindling with ever increasing demand fuel the speculation. But it has become EXTREME and EXCESSIVE and completely out of control to the point large firms are artificially putting upward pressure on prices to protect positions. We saw the exact same thing in soybeans in 1990 and in cotton in 1998. In both cases, Congress acted and the speculators were forced to fly the coop.

And oil is not just another commodity, it is a vital part of our national security, and as such it has become as important a national security issue as an economic issue. In 2003 there was about $16,000,000,000 of cash in oil market, today $260,000,000,000!!! It has gotten beyond insane to pure, unadulterated MADNESS and Congress is going to step in. I suspect speculators will fly the coop even before then as many are going to investigated for racketeering and illegal market manipulation. The political climate has finally begun a laser-beam focus on runaway speculation and they are going to be looking for witches to burn. And it's an easy hunt.

As for all the reasons behind bets on oil almost all are flat out WRONG. Oil is NOT in short supply, it never has been, and even if you believe in Peak Oil it will be a decade or more before we truly begin to see a honest shortfall. The dollar's fall is largely done. And as for geo-political concerns the Middle East has seen MUCH more unrest in the past 40 years than it sees today. Iraq has settled down considerably in the past year, as has Nigeria and Chavez has been very quiet for some time. Iran is NOT going to be a target of anything any time soon other than some sanctions if they don't stop their nuclear program, and they cannot afford to stop oil shipments as their economy is already bankrupt with oil be their only source of national income. So no, the continuing run on speculation is now nothing more than a panic driven frenzy by large investment firms that see the same thing happening with their oil bets they just saw happen with their housing bets...

How about we just agree to disagree then, because I definitely disagree with you about the Dollar. Let's just compare each others' analyses in about 6 months or so and see who was right.

Certainly, for the sake of this country, I hope YOU are right.

Artificially adjusting interest rates is only going to hold the dam for so long. Eventually our bills are going to come due.

 

[jreeves]

This is amusing.

On one hand we have the oil companies swearing that they have nothing whatever to do with the high cost of energy.

But if we're willing to cut their taxes to nothing, then the price of energy will go down.

What's wrong with that picture?

This is an ignorant post, are you aware the amount of taxes the oil industry has paid?

 

[Zoomie1980]

How about we just agree to disagree then, because I definitely disagree with you about the Dollar. Let's just compare each others' analyses in about 6 months or so and see who was right.

Certainly, for the sake of this country, I hope YOU are right.

Artificially adjusting interest rates is only going to hold the dam for so long. Eventually our bills are going to come due.

Those bills NEVER become "due". They just keep getting refinanced. And those who own the paper would never call them in, as doing so is suicide for EVERYONE (aka China). We have a symbiotic relationship now with those that own our paper. Neither side can exist without the other, it's simply the way economic Gods have made it now. Welcome to the undeniable GLOBAL economy. There is no real "USA" or "UK" or "Chinese" or "Japanese" economy. We are all intertwined global symbiots. YOu are either part of the global economy (the G8 and a few others) or you are not...the rest of the world.

 

[editec]

This is an ignorant post, are you aware the amount of taxes the oil industry has paid?

Are you aware of the fact that if the oil companies are not responsible for the run up in oil prices (and I do not think they are) then their tax structure will have no effect on the price of oil, either way?

 

[BaronVonBigmeat]

It would have been a good idea, then.

There wasn't enough money in circulation, simple as that.

Printing money and inflating benefits the indebted* but also punishes savers. The farmers of the 1800's didn't have a right to use government force to punish savers because they overinvested and had a glut of product. If they signed a contract to repay in gold, then they need to repay in gold.

The problem was never money supply. What's the difference between a can of soda being 5 cents or 50 cents or 5 dollars? Nothing, if you earn $2/hr, $20/hr, or $200/hr, respectively.


* if it's an unexpected bout of inflation. If it's expected and been going on for a while, banks will simply jack their interest rates up to account for it.