What is the main, real reason that a barrel of crude oil has gone above $90?

ordinaryguy

In order to make any kind of sense out of all this, it's important to have a concept of the relative size of the various pieces and parts of "the economy". Although government spending, taxation, and borrowing behavior gets a lot of well-deserved scrutiny and debate, it still constitutes a modest share of the total economy. Since 2001, US government spending as a share of Gross Domestic Product (GDP) has increased from about 18% to around 20%. This means that private individuals and businesses still control the spending and saving decisions over 8 out of 10 dollars in circulation. Yes, the government is "big", but only one-fifth as big as the private sector. An eight hundred pound gorilla is still quite a bit smaller than a two-ton gorilla. So that's an important thing to keep in mind.

Another thing to consider is that the government deficit (the difference between tax receipts and spending outlays on an annual basis) is relatively small (about 2% of GDP) compared to the levels of spending and revenue. Thus new net government borrowing in a given year is a small fraction of total government spending, and a tiny fraction total private borrowing. So yes, it has an effect, but seen in perspective, it's not some kind of economic tsunami that's about to swamp the boat.

magprob

OG, I have always respected your intelligence in most matters but today I have one more question to ask you, have you ever, or do you now, work for the government?

K_3

Ordinaryguy, explain to me if big governments do not control the world, who does? How can a country possibly stay strong by spending more than it has or can generate. Small companies are being bought up by larger corporations. Farms are even being bought by
large corporations. Seed companies are being bought by corporations. I took economics in college also. I only have to open my eyes and see what is really happening to our country to be concerned. One can debate all day as to who is right and who is wrong from a book point of view. The evidence is in front of our faces. The price of oil does not only pick ones pocketbook at the gas station, it is in the price of heating our homes, all products from food to shoes due to trucking expenses. The gas farmers need to farm is killing them, whick in turn hurts us. If our economy is so great and the federal reserve is doing their job why are people loosing their homes? I know as an individual, if you start living on credit and borrowing from your neighbor your household is going to one day collapse and your neighbor will own your home. Our country has been living on credit and has borrowed from other countries and I am afraid we no longer own our country.

magprob

magprob

Inside the Kremlin, with Putin nearing the end of his second and final term as president, that sum now looks like peanuts. Russia's gold and foreign-currency reserves have risen by more than that amount just since July. The soaring price of oil has helped Russia increase the federal budget tenfold since 1999 while paying off its foreign debt and building the third-largest gold and hard-currency reserves in the world, about $425 billion.

ordinaryguy

Nobody.

When you say "country" do you mean "local, state, and federal governments" or "private businesses and individuals", or "both public and private production, consumption and investment"? I'm also not quite sure what you mean by "more than it has or can generate".

At the aggregate level of "the nation", we consume everything we produce (except net ex/imports) and we either spend, save or invest everything we earn. Taxes are simply what the private sector decides to spend on government services of all kinds. Granted, some of these "services" amount to very little more than picking my neighbor's pocket and giving it to me (minus a "service charge" of course), but somehow those on the receiving end of these transfers don't usually see it that way. That's part of what makes politics so entertaining. But I digress.

Yeah, so, some conglomerates are spinning off businesses and going private. Bigger is not always better, as many a failed corporate merger has demonstrated. The amount of influence that government policy can have on most of these transactions is small, and that is exactly as it should be. Business and financial lessons are being learned every day in the school of risk and reward, and yesterday's revered dogma becomes tomorrow's bad joke. Remember the "Internet Boom"? Hint: It was just before the "Real Estate Boom".

And what is it, exactly, that you think is "really happening to our country" that concerns you so? Is it that you think the public sector is too big, or just that it spends your tax money on the wrong things? Is it that you think private businesses have too much economic freedom, or too little?

I haven't got to that yet. I'm still just describing the facts of the situation.

Times are tough all over. So it has always been, and so shall it always be. What's your point?
Because they borrowed more money than they had the ability to pay back, and/or because they accepted loan terms that not only put all the risk of higher interest rates on them rather than the lender, but actually amplified that risk. Should the government have prevented them from taking these risks? Now that they have lost the bet (that prices would appreciate rapidly and interest rates would remain low for the foreseeable future) should government (i.e., the rest of us) bail them out?
It would be hard to overstate the advantage that the US has had relative to other nations due to the fact that (many many) foreigners, including individuals, businesses, banks, insurance companies, pension funds, and governments are willing to loan money to both the US Treasury and US private businesses. That would be generous enough by itself, but in addition, they often use our money even for their own purely domestic transactions, and allow major export products (most importantly, crude oil) to be priced in dollars. All of these things work to our advantage as long as that willingness endures. To the degree that it wanes, we will begin to reap some of the more bitter fruits of all the excess consumption (beyond a domestically achievable level) that we have indulged in since the greenback became the defacto reserve currency for the world economy.
Personally, I don't think it will hurt us to eat a little bitter fruit and learn to live by the same financial realities that the rest of the world faces. I just hope we don't have to eat it all at one meal, or even all in one year.

ordinaryguy

I have never worked directly for the Federal Government, though I have participated in university research that was federally funded. I did work for State government for 10 years (mid-80's to mid-90's). For the last 13+ years I have been a self-employed producer of beef cattle.