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Higher Oil Prices Weren't Caused By Supply & Demand
Forbes ^ | November 10, 2008 | Steve Forbes

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 ...


TOPICS: Business/Economy; News/Current Events
KEYWORDS: steveforbes
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1 posted on 10/26/2008 2:23:46 AM PDT by ari-freedom
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To: ari-freedom

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...


2 posted on 10/26/2008 2:34:57 AM PDT by DB
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To: DB
"...inflation was much, much higher than being claimed. That it was essentially out of control. Everyone holding dollars saw their wealth shrink..."

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.

3 posted on 10/26/2008 2:58:02 AM PDT by expat_panama
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To: DB
Then, suddenly, in the dying days of the Cheney-Bush Empire Barney Frank had a flash ~ what if, he thought to himself, I could do something to DEFLATE the dollar and bring down the price of houses.

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.

4 posted on 10/26/2008 3:02:22 AM PDT by muawiyah
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To: ari-freedom

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.


5 posted on 10/26/2008 3:13:03 AM PDT by wendy1946
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To: expat_panama

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.


6 posted on 10/26/2008 3:16:42 AM PDT by JudgemAll (control freaks, their world & their problem with my gun and my protecting my private party)
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To: JudgemAll
"...people who value their money seriously enough to bother looking into it."

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.

7 posted on 10/26/2008 3:45:55 AM PDT by expat_panama
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To: muawiyah
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

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?

8 posted on 10/26/2008 3:53:43 AM PDT by expat_panama
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To: wendy1946
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.

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.

Point.

9 posted on 10/26/2008 4:12:00 AM PDT by lentulusgracchus ("Whatever." -- sinkspur)
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To: lentulusgracchus

Lighten up, Francis.


10 posted on 10/26/2008 4:20:19 AM PDT by GOP_Party_Animal
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To: lentulusgracchus

You’re talking psychology, I’m talking physics.


11 posted on 10/26/2008 4:28:31 AM PDT by wendy1946
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To: muawiyah
You must be off your med’s.
12 posted on 10/26/2008 4:54:57 AM PDT by org.whodat ( "the Whipped Dog Party" , what was formally the republicans.)
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To: muawiyah
You can add to the story however you want, but the price of housing was slashed anywhere from 20% to 47% in most markets.

Even in most bubble markets homes are still worth more than they were 5 years ago...

13 posted on 10/26/2008 5:22:57 AM PDT by EVO X
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To: ari-freedom
Higher commodity prices went hand in hand with higher housing prices. The freeing up of the monetary supply, excessively low interest rates, led to an increase in riskier speculation. The Dollar had an obvious effect because oil is priced in Dollars but it was a combination of factors. The tightening of lending practices has cooled all of the speculative practices simultaneously. I think it's safer to say that prices are nearing a normal value.
14 posted on 10/26/2008 5:29:17 AM PDT by allmost
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To: ari-freedom

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.


15 posted on 10/26/2008 5:57:36 AM PDT by Recovering_Democrat (A vote for Hussein is insane!)
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To: ari-freedom
Thus most of the oil increase is a result of dollar inflation, not traditional supply and demand.

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.

16 posted on 10/26/2008 6:01:03 AM PDT by mlocher (USA is a sovereign nation)
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To: lentulusgracchus

“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?


17 posted on 10/26/2008 6:31:12 AM PDT by yazoo
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To: muawiyah

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.


18 posted on 10/26/2008 6:38:47 AM PDT by Sherman Logan (Everyone has a right to his own opinion, but not to his own facts.)
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To: expat_panama; muawiyah
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?

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:

http://www.minyanville.com/articles/WMT-TGT-bailout-RAD-recession-deflation/index/a/19691

You might also find this discussion useful:

http://globaleconomicanalysis.blogspot.com/2008/10/keynesian-claptrap-from-pimco.html

19 posted on 10/26/2008 7:18:08 AM PDT by lentulusgracchus ("Whatever." -- sinkspur)
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To: GOP_Party_Animal
Lighten up, Francis.

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"?

20 posted on 10/26/2008 11:51:19 AM PDT by lentulusgracchus ("Whatever." -- sinkspur)
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