Skip to comments.Higher Oil Prices Weren't Caused By Supply & Demand
Posted on 10/26/2008 2:23:46 AM PDT by ari-freedom
For decades the prices of gold and oil have closely paralleled one another. In 2003 an ounce of gold would have bought you 12 barrels of oil. Today that ounce will buy you about 11 barrels, even though the nominal price of oil is almost three times what it was in 2003. Thus most of the oil increase is a result of dollar inflation, not traditional supply and demand.
(Excerpt) Read more at forbes.com ...
I built a home from 2003 through 2007 and I’ve been saying for all that time inflation was much, much higher than being claimed. That it was essentially out of control. Everyone holding dollars saw their wealth shrink dramatically, but quietly...
Good morning to you! The article is bunk. The fact is that 'inflation' can be pretty much anything that anyone says it is, which is why we end up with so many different numbers and still we get no end of complaining..
I buy and sell things a lot, and changes in prices mean a lot to me in how I feed my family. If you've got a better way of measuring what you call 'inflation', then you're more than welcome to share it.
As far as wealth goes, most people I run into say that that they themselves are better off than they were say, ten years ago, but it's just the last few quarters that were rough.
At first it was but an ACORN of a thought, but gradually all the details came into play. First, Jamie Gorelick would arrange with her friends in ALQAIDA to attack the WTC/Pentagon Cheney-Bush Imperial centers of power, to distract "W" of course, and then she'd go on over to FANNIE MAE to pull the rug out from underneath the very concept of credit.
"Oh, yes" thought Barney, I could do that and Nancy would call me her own personal hero and she'd supply me with an endless number of muscular young vintners from her fields.......
You can add to the story however you want, but the price of housing was slashed anywhere from 20% to 47% in most markets.
You tell me that's not deflation...... go ahead.... I dare you.
Main diff between oil and gold is that oil is actually useful for something. In a rational world gold would be used for waterfowl shot and electrical connections and that would be about it.
The article is not bunk. It approaches one of the facets of the money and market algebra out there that is being used by sensitive people who value their money seriously enough to bother looking into it.
If you don’t want to bother, then too bad for you. Bush or Obama’s redistribution or gifts won’t be there to save you.
I take it that you're one of these people too, so how about we look into it together.
The article says that oil and gold show us what true value is and the way their prices tend to track each other can show us what true inflation is. The price of oil and gold has gone down by about half over the past half year. Nobody actually believes we've just had 50% deflation, so the article is bunk.
Dang, you beat me to it! We've got oil, gold, and housing prices all plummeting and this proves that we've got deflation. Then again, we got prices for medical care, food, and education going up so does that mean we got inflation at the same time we got deflation?
In a rational world, you would understand that gold is money and silver is money, and nothing else is really money. That's why they call paper cabbage currency instead.
Try to buy something to eat in France or Cameroon with Canadian or Australian dollars or, God forbid, with Mexican dolares pesos or Indian rupees -- as many lakh and crore as you please, it won't make any difference. Then offer gold coin, and see what happens. You'll eat like a king. Hell, they'll offer you their daughters for dessert, and you'll have to decline very delicately.
Lighten up, Francis.
You’re talking psychology, I’m talking physics.
Even in most bubble markets homes are still worth more than they were 5 years ago...
steve forbes is usually pretty good, but this article really doesn’t explain his thesis. He starts out saying gold and oil have followed each other for decades. Okay. So?
That doesn’t mean oil doesn’t follow the same commodity rules as everything else, does it?
Forbes may be able to demonstrate his idea, and maybe I’m just thick, but I do not see it here. Especially in such a short, short piece.
Inflation!? I think not. If it were inflation, the overall price of EVERYTHING would be going up. What we are witnessing is a redistribution of wealth from the US to oil producing countries. The law of supply and demand works, even in the oil industry.
“In a rational world, you would understand that gold is money and silver is money,”
But isn’t it only money because people give it that value artificially? It has no intrinsic value other than what people give it?
That’s not deflation.
Deflation is an increase in the value of money, which thereby causes a decline in the money price of all commodities. It is not a decline in the value of commodities, such as housing, which has recently become overpriced and is now being forced to revert to its actual value.
Give that man the kewpie doll. That is the correct answer.
It's a race to the bottom. The Fed and Paulson's Treasury induced deflation (not Barney Frank) by making a rule that even foreign redeemers of CMO's, credit default swaps, and other exotic derivatives would have to settle in dollars, even if they were in the Eurozone. Hence a rush to dollars which has driven the (much-inflated) buck up from 71 to (Friday) 86 on the DXY (dollar contract) Index. Which in turn tripped up gold and oil, and started a big rush to unwind hedge-fund and mutual-fund positions, even among holders who desired to continue to hold these attractive assets. (See the definition of "fiduciary".) They had to sell, by law.
But the Fed and Treasury have injected so much cash, and the Treasury has so scuzzed up the national balance sheet by taking questionable assets onto the books of the People of the United States, in our name but actually for the benefit (IMNSHO) of the investment banks (of whom, remember, Hank Paulson is still one -- Treasury is just his day job), that an inflationary or even hyperinflationary reckoning would seem to be baked into the pie by now.
For a better-reasoned and more fact-studded discussion, have a look at this Minyanville article:
You might also find this discussion useful:
It's understandable that a "party animal" would tell someone talking economics to "lighten up".... but it's an inherently non-lightening subject. It's payday, man, and I want you to show me the guy who doesn't get real serious when his packet comes up short, with a note about some b.s. excuse about why he got stiffed for some deduction.
Paying and getting paid is a hallmark non-partying event. It's where the rubber meets the road. Sorry to disappoint. And who or what is "Francis"?
Those same evil countries were still there in the 90’s when oil was $10 a barrel and everyone was driving gas guzzling SUV’s.
it’s part of his main article about the whole financial crisis
It’s 3 pages. From page 2:
In 2004 the Federal Reserve made a fateful miscalculation. It thought the U.S. economy was much weaker than it was and therefore pumped out excessive liquidity and kept interest rates artificially low. When too much money is printed, the first area to feel it is commodities. Thus the Fed begat a global commodities boom. The price of oil, copper, steel, international shipping—even mud—shot up. The price of gold roared above its average of the previous 12 years. For nearly 4 years the dollar sank against the euro, yen and pound. Domestically the already booming housing market went on steroids. Housing was experiencing above-average price rises because of a favorable change in the tax law in 1998 that virtually eliminated capital gains taxes on the sale of most primary residences. Now with money easy, a bubble mentality took hold. The reasoning was that housing prices always go up; therefore, lending standards could be safely lowered. If a dodgy borrower defaulted, it didn’t matter—the value of the house would always be higher. Wall Street’s appetite for these fee-generating packages of subprime mortgages became gluttonous. Rating agencies also drank the Kool-Aid and gave AAA ratings to this stuff, which, thanks to securitization, was spread all around the world. The Fed and other bank regulators stood by as the bubble ballooned.
Why didn’t the Treasury Department—behind the scenes—tell the Fed to strengthen the enfeebled greenback? Because the Bush Administration likes a weak dollar, feeling that it will improve our trade balance by artificially making our exports cheaper. Not since Jimmy Carter has the U.S. had such a weak-dollar Administration. This mania would never have reached the proportions it did had the Fed and Treasury had a strong-dollar policy.
And who or what is "Francis"?
A character in a comedy. Judging by your comments, I'm guessing you don't see many of these.
what, he’s been saying this for years. If he was president in 1996, we wouldn’t be in the mess we’re in today. He was talking about gold during a time when prices were pretty stable. of course nobody listened to him then.
I don't believe either economic theory is sufficient to the task of understanding what really happens in market economies
Obviously gold is going to track the flow of dollars/euros.
Make that stuff radioactive and the same people would continue buying it.
Frankly I think the whole utility of gold is shortly going to go into the dumper with developments in the new scientific field of "super atoms".
super atoms? why would someone waste $ trying to make more gold out of thin air when gold doesn’t do anything useful except compare prices as Wanniski explains here:
Alas, the Monetarists have no real confidence in their own theories and just don't want to face the fact it's going to shortly (in a historical sense) be as common as dirt.
We'd have the same difficulties with the "labor" based unit as we had with gold in an earlier time when the supply of gold was simply not adequate to support the currency needs of industrialization.
So if we had the leadership to drive the price of oil down swiftly and dramatically further than its now falling despite anything attempted by OPEC and Putin and their pals and keep it there, and eliminate quickly our need for foreign oil at the same time, we could create an economic “surge”. The inflation can be traced back to OPEC’s 1973 embargo and its aftermath. The dollar’s primacy could be restored along with our economy.
Well, actually it has a lot of uses as it has some unique qualities, but you’re right, oil does not have the same functionality as a storer of wealth and medium of exchange that oil does.