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

I don't think there is a single cause.

My guess is that speculators in the market have done a number on the price .Oil trading has increased by almost 10 times in recent years as new players have flooded into the market.
My guess is that the declining value of the dollar has something to do with it . Some holders of the dollar are probably converting them into commodities of all kinds. Gold and Silver are also on the rise.

Geopolitically the threat of a Turkish invasion of Kurdisatan and the possible disruption of the flow of oil through that region played a part . Also the possibility of rising tensions with Iran is fueling the speculators. There are some hot spots in key oil producing nations like Nigeria and Sudan . Also;much of the world supply is held by countries that have nationalized their industries ,with all the inefficiences that represents.

This is not peak driving season . But stockpiles are not as high as they should be ,and there is a greater demand from countries like China and India . However ;I think supplies will be restocked and if I was holding onto futures I would sell them off now ;or before the new year.Goldman Sachs recommended clients to take profits, predicting the price could fall back to US$80 a barrel by April.If I was a new investor I would NOT be investing in oil at this price.

My guess is that you want to address the idea of post -peak oil . I am not convinced that is true however since there is a lack of exploration and infrastructure investment . There has not been a new refinery built in the US since I was a young man. New platforms need to be built and exploration in some prohibited areas begun before I am convinced that the world wide supply is in a post peak decline.75% of the US's oil supply is currently off limits to drilling

I got a cost comparison for consideration. Back in the 1970s I had a gas guzzling clunker that went about 10-12 mpg. I paid $30 at the pump and went apx 200 miles when it was tuned up . Today for the same $30 I travel 300-400 miles in a car that excedes 30mpg . Was I better off then or now ?

Hello mag:

Inflation.

The price of oil, in terms of its relationship to other commodities, has not risen. On the other hand, the price of the dollar, in relationship to those commodities, has fallen.

To wit: In 1958 I could buy a gallon of gasoline with a quarter and get change. In 2007, I can still buy a gallon of gasoline with that same silver quarter and get change.

excon

Hello mag:

Inflation.

The price of oil, in terms of its relationship to other commodities, has not risen. On the other hand, the price of the dollar, in relationship to those commodities, has fallen.

To wit: In 1958 I could buy a gallon of gasoline with a quarter and get change. In 2007, I can still buy a gallon of gasoline with that same silver quarter and get change.

excon

That is exactly right Excon. You understand our economic plight in the "free world." Oil is priced in dollars. When the federal reserve prints excess dollors, the dollar will not buy the same amount it did at a lower inflation rate. Same with a can of beans or a loaf of bread. The average wages go down too. If you are making $10.00 per hour and the Fed prints more money, you are then making less money per hour. When they cut the interest rate, the middle class people that save, lose part of their savings, wages and pay more for goods at a higher price.
It is the rich stealing from the poor and making them poorer.

Then I should revise post # 3 to include the fact that I am getting more for my inflated buck than I was in the 1970s

tomder55 agrees: yes that is part of it ;but there is a lot of liquidity out there and people are looking for investment venues. Thus a lot of speculation . My guess is the hedge funds don't have real estate anymore so they went to the commodities.

You basically said it yourself but in the terms they, the government economst use, "Liquidity." That means the Fed has printed too much money and the rich are looking for places to put it while the middle class is still wondering where it went. It was siphoned out of their hands and loaned to the big corporation which in turn let it "trickle down" in the Corporate welfare state we call America. The cop[orations have the huge lines of credit that the fed prints up. The fed makes mega huge profits from the interest rate to the corporations and the government. (Bonds or IOUs) That is why the deficit will never be paid.

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

Because we are dumb enough to pay that much for it.

https://www.askmehelpdesk.com/attachment.php?attachmentid=5189&stc=1&d=1194369182

Maybe a little more.

https://www.askmehelpdesk.com/attachment.php?attachmentid=5190&stc=1&d=1194369527

Because we are dumb enough to pay that much for it.

Yes but, a boycott on oil will do nothing. We need to boycott the federal reserve.;)

Until people know who the real players in this game are, they cannot make an accurate statement concerning anything that has anything to do with politics. Off the soap box kids.

So when the price inevidibly drops in a couple of months that will mean we are in a disinflation cycle ;or the value of the dollar is recovering ? When the price of crude remained steady for a long period that your charts started to go to the sky ;why didn't the price of crude simularily rise. Forgetting the increase in the last 2 years the ppb remained pretty steady between throughout the later half of the 1980s and the 1990s .

I think the price has a lot more to do with basic supply and demand issues than the dollar value .

Because for some reason, the fed is printing ungodly amounts of money and the dollar is virtually worthless. They have been proping up a seriously failing economy. Now, paper money is finally coming back to it's true value... 0!
I will not argue with your ego however. You need to figue it out for yourself before the truth finally means something.

Because for some reason, the fed is printing ungodly amounts of money and the dollar is virtually worthless. They have been proping up a seriously failing economy. Now, paper money is finally comming back to it's true value...0!
I will not argue with your ego however. You need to figue it out for yourself before the truth finally means something.
You are right in my opinion, it is because of the falling value of the dollar; or anyway the dollar is falling which is a fact.

In terms of real value, real goods and real money, there is nothing wrong with our economy and never has been. It is the strongest in the world. In terms of the way the private bankers have manipulated it, squeezed it to death, it is their system that is failing.

OK DC since you don't mind debating my ego .

On post # 2 I identified a number of other possible reasons . Is it being suggested here that with a strong dollar all these other factors are irrelevant ?

By private bankers I mean the Federal Reserve.

By a strong dollar, we enter into recession near depression. Then, wage earners are making closer to a real wage ( paper money is worth more) and because of that, workers are to expensive, they get laid off. To compensate for the unemployment, the fed begins printing more money. That brings down the true value of your wages and the corporations get labor at a cheaper rate, plus, they have more money lent to them by the fed.

Then, it all starts over again.

ok DC since you don't mind debating my ego .

On post # 2 I identified a number of other possible reasons . Is it being suggested here that with a strong dollar all these other factors are irrelevant ?
Oil trading I have no knowledge about, so I'll “push” on that. The threat of a disruption in oil flow out of the mid-east…That may be a factor although that is quite unlikely. Turkish invasion of Kurdisatan…no, I think the situation in Pakistan and the possibility of war with Iran more likely.

The dollars only value is relative to other currency and that is where the problem is.

Other currencys values is relative to the value of the dollar. Canadas currency just went above the value of the dollar for the first time.

The dollars only value is relative other currency and that is where the problem is.Hello again:

Actually, the dollars only value is relative to GOLD, not other currencies. Other currencies aren't tied anymore to gold than the greenback is and they're falling too.

The government tried to tell us that gold isn't money - paper is. But, of course, gold IS money, the sky is blue and the world ain't flat. I don't know why the government thought it could tell us that. Some of us didn't believe it anymore than we believed them about WMD's. Bwa, ha ha ha.

excon

Yes, paper money is no longer relative to gold. There is no longer a Fort Knox. That gold was stolen from us long ago. The paper money is worth what the fed says it is. The true value of it is 0. You cannot make something out of nothing. Someone will lose in the end. I speak in virtual terms as our government does.

Petroleum is bought and sold in dollars. That meant that as oil prices climbed, so did the global demand for dollars. And the appetite for dollars grew even larger during recurrent oil shocks, as rising risk aversion prompted investors to seek safety in U.S. Treasury securities.

The U.S. currency was also buoyed by the inclination of oil-exporting countries to invest their sale proceeds in dollar-denominated securities. When they spent the funds on goods, they usually bought American.

But since early 2002, the correlation between oil and the dollar has been negative. When oil rises, the U.S. currency falls.

Oil is up, and this time the dollar is down - International Herald Tribune (http://www.iht.com/articles/2007/09/23/bloomberg/bxatm.php)

That meant that as oil prices climbed, so did the global demand for dollars.

So, in other words, "Were printing them up just as fast as we can!"

That meant that as oil prices climbed, so did the global demand for dollars.

So, in other words, "Were printing them up just as fast as we can!"
Did you read the link I provided? I can’t attach any real meaning to: "Were printing them up just as fast as we can!"

Particularly in view of the fact that when oil prices increase demand has been going down, and this has been the case for almost 6 years.

Printing up more dollars! I know what the government economist have to say. I Don't listen to that crap anymore though. You would do well to stop listening to it yourself. At least stop reguratating here.

So with all of that said, I would like to make one more point before I go. I know a fascist when I smell one. The only people that don't like to be called fascist are 1) Fascist, and 2) people that have been brain washed by fascist.
A government that steals its citizens labor, for their own enrichment, is fascist.

Printing up more dollars! I know what the government economist have to say. I Don't listen to that crap anymore though. You would do well to stop listening to it yourself. At least stop reguratating here.
The only reguratating going on in this thread has been by you. You have provided absolutely no evidence that would lead me to accept your position. In fact I’m not sure just what it is except that you know something economists don’t know.

I am just amazed that simple supply and demand is being dismissed on this thread. China and India alone have economies that have rapidly grown in the last decade. All this growth is fueled by petroleum.

The gold standard created any number of economic crisis' because it lacked flexibility . Many economist attribute the gold standard as one of the reasons the great depression was so severe. Which major currency today is backed by it ? Let's leave gold where it belongs ;in industrial applications and in fine jewelry .

I am just amazed that simple supply and demand is being dismissed on this thread. China and India alone have economies that have rapidly grown in the last decade. All this growth is fueled by petroleum.

The gold standard created any number of economic crisis' because it lacked flexibility . Many economist attribute the gold standard as one of the reasons the great depression was so severe. Which major currency today is backed by it ? Let's leave gold where it belongs ;in industrial applications and in fine jewelry .
As you pointed out in post#2…”But stockpiles are not as high as they should be ,and there is a greater demand from countries like China and India “.

I can agree with that, it’s just that they are spiked by the falling dollar because the dollar buys less oil today than it once did. Well, according to Mansoor Mohi-uddin, the head of foreign exchange strategy at UBS, in Zurich and Stephen Jen, the global head of current research for Morgan Stanley in London.

From about $19 a barrel in late January 2002, the price of oil has catapulted to $81.62. Since then, the dollar has tumbled by 39 percent against the euro, to $1.4081, and by 34 percent on a trade-weighted basis.
After the Federal Reserve cut its federal funds rate by half a percentage point to 4.75 percent on Sept. 18, crude oil rose to a record $83.90 a barrel and the dollar fell to a record low of $1.4120 to the euro.

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

The question asked about the MAIN reason for the high price of crude. I answered it. You guy's are not wrong about your jillions of little reasons. But, they are LITTLE reasons.

excon

Because for some reason, the fed is printing ungodly amounts of money and the dollar is virtually worthless. They have been proping up a seriously failing economy. Now, paper money is finally comming back to it's true value...0!
I will not argue with your ego however. You need to figue it out for yourself before the truth finally means something.

Just like anything else, as long as citizens BELIEVE paper money is worth something and can be used as legal tender to purchase things and pay for services it's value will be greater than zero.

I'm not a banker or economist, but I bet that if every US citizen cashed out all their savings, checking, retirement, investing accounts there would not be enough 'paper' money to cover this kind of run.

if every US citizen cashed out all their savings, checking, retirement, investing accounts there would not be enough 'paper' money to cover this kind of run.Hello in:

Actually, it's not even paper anymore. It's just zeros and ones on a memory chip. When you say, "cash in", you probably mean from one computerized dollar denominated account to another.

If you mean "cashed" in actual paper money, you're right. There ain't near enough. But they'll just bring back the $10,000 dollar bill.

excon

Not having read any of the posts that came before this, I will chime in fresh.

1) Supply and demand: there is a limited supply of oil due to a limited number of refineries in the world. There is a huge demand from every developed and developing nation on Earth for oil. Ergo, prices are high. One way to decrease the price of oil is through the construction of additional refineries.

2) The general unsureness regarding oil sources: the Middle East is a place of turmoil. Iran is hostile to the western world. Iraq is the site of a war. Kuwait is on the border of that war. Saudi Arabia is in a constant state of political flux. Venezuela has become hostile to the USA. So about 70% of all oil sources are in politically unstable environments. That drives oil prices up.

3) I don't know if the value of the dollar has been mentioned on thjis thread, but I suspect it has. Some people will argue that the decreasing value of the dollar is a main source of the price increase in oil. I happen to disagree. And for proof, I offer the fact that oil prices are increasing EVERYWHERE, regardless of what the value of a particular currency is. Nevertheless, the falling value of the dollar makes that increase more evident here in the USA than elsewhere.

4) Willingness to pay: it seems to me that people are still willing to fill it up at the pump. There doesn't seem to have been any major decreases in travel, despite the increase in gas prices. People are still willing to pay at the pump, so the oil companies are willing to take people's money. Decreases in travel would go a long way in lowering oil prices. But as long as people are willing to pay at the pump, prices will stay high. Whatever the market will bear...

However, it should be pointed out that the price of oil isn't as high as some other everyday products we use.

The pricce of oil is roughly $90 per barrel. A barrel is 42 gallons. Thus the price per gallon is roughly $2.14.

Here are some prices per gallon for some household products:

Pantene Pro V shampoo = $50.69
Pantene Pro V conditioner = $47.31
Aquaphore skin lotion = $358.03
Dial hand soap = $27.96
Listerine Cool Mint Mouthwash = $20.01
Degree Antiperspirant & Deodorant Aerosol = $127.68
Gillette Series Shave Gel = $60.16
Comet soft abrasive bathroom & kitchen cleanser = $17.01
Ajax dish liquid = $12.01
Clorox spray and mop floor cleanser = $18.61
Liquid Plumr drain de-clogger = $25.34
Pledge furniture polish = $40.86
Folgers 97% caffine-free instant coffee = $95.89
Breyers chocolate chip ice cream = $11.98


Why are we so worried about the cost of gas when the fact is that the cost of most other items we use just as often are actually much higher? What is the big deal? Why is this generating so much of a ruckus?

Elliot

Why are we so worried about the cost of gas when the fact is that the cost of most other items we use just as often are actually much higher? What is the big deal? Why is this generating so much of a ruckus?Hello El:

Spoken like a man who takes the train to work. Plus, I wonder if your support of the oilman in the Whitehouse has anything to do with it?? Nahhh.

Most people in this country, El, have to drive to work. They don't have to buy Breyers ice cream. But, that's not going to be a problem shortly, cause they won't be able to AFFORD Breyers ice cream.

excon

Firmbeliever,

What percentage of the cost of any product is transportation costs? Frankly, it is relatively low on the overall expense list of any product. A 20% rise in the price of oil might effect the price of shampoo... by a penny or two. Maybe.

Excon,

I take the train to work, but my wife drives. I still heat my home. I go to various meetings and errands with my car. The idea that because I don't drive to work I must not know the cost of a gallon of gas is rather silly.

Furthermore, you may not need that gallon of ice cream, but you probably do need the shampoo, soap, mouthwash and deoderant. Not to mention the cleaning supplies to clean your home. Picking on ice cream ignores the rest of the items I listed.

Also, despite the fact that gas prices are so high, and people are paying more for it, they still seem to be buying ice cream. I haven't seen any reports that sales of ice cream are down due to lack of affordability, have you? If people are still buying the stuff even though it is a luxury item, that tells me that people are still buying luxuy items... and that the effect of the rising price of oil has been minimal.

Sorry, excon, but I just don't see it as that big a deal. I certainly don't see it as a case where people will be paying so much for gas that they won't be able to afford food and shelter... or that the rise in gas prices is causing a major rise in the prices of other products. We already pay exorbitant prices for our daily household needs. Much more exhorbitant than the price of gas.

Elliot

I would like to repeat an earlier reply :

I got a cost comparison for consideration. Back in the 1970s I had a gas guzzling clunker that went about 10-12 mpg. I paid $30 at the pump and went apx 200 miles when it was tuned up . Today for the same $30 I travel 300-400 miles in a car that excedes 30mpg . Was I better off then or now ?

1) Supply and demand: there is a limited supply of oil due to a limited number of refineries in the world. There is a huge demand from every developed and developing nation on Earth for oil. Ergo, prices are high. One way to decrease the price of oil is through the construction of additional refineries.
Sorry, but the refinery bottleneck theory doesn't fit the facts. Crude oil is the raw material for refineries, and transportation fuels are the primary outputs. If a lack of refinery capacity were the main problem, crude oil would be selling at a big discount to refined products, refineries would be making money hand over fist and companies would be falling all over themselves to build more.

None of this is happening. Crude is expensive, refinery margins are modest at best, and new investment in refineries is also (appropriately) modest. The supply-demand shift that's happening is more fundamental, having mostly to do with huge demand increases in the developing world, especially India and China. We ain't seen nothing yet. A company in India has just announced plans to produce a $2500 automobile.

Having said that, I do agree with your conclusion that it's not as big a deal as many would like to make of it. Transportation has been artificially cheap for a very long time, so there is a lot of potential to adapt to a more realistic (significantly higher) price for it. One by-product of that will be a reduction in the cutthroat competition between domestic (i.e. nearby) and foreign (i.e. distant) producers of everything from baby shampoo to steel. Consumers will pay more, but more of their dollars will end up in their their neighbors' pay envelopes instead of halfway around the world. Not such a terrible thing, it seems to me.

Sorry, but the refinery bottleneck theory doesn't fit the facts. Crude oil is the raw material for refineries, and transportation fuels are the primary outputs. If a lack of refinery capacity were the main problem, crude oil would be selling at a big discount to refined products, refineries would be making money hand over fist and companies would be falling all over themselves to build more.

None of this is happening. Crude is expensive, refinery margins are modest at best, and new investment in refineries is also (appropriately) modest.

But it is. Take a look at the price of gas at the pump vs. the price per gallon of crude. Crude is selling for about $2.14 per gallon whereas prices at the pump are running an average of $3.25 per gallon or so. That's a 52% markup on refined product.

As for the fact that there has only been modest investment in refineries, I agree. But where I disagree is about WHY that is happening. You believe that it is because of lack of demand. I disagree. I believe that the lack of refinery investment (and overall oil-ifrastructure development) is because of POLITICAL reasons... the NIMBY syndrome (Not In My Back Yard), and a general dislike and distrust of all things "oil" by a large segment of the US population. From a market perspective, there clearly is a demand for increased refinery capacity. Your argument below just proves that point.


The supply-demand shift that's happening is more fundamental, having mostly to do with huge demand increases in the developing world, especially India and China. We ain't seen nothing yet. A company in India has just announced plans to produce a $2500 automobile.

China made the same announcement about a cheap car in 2005. I'm still waiting.

But assuming that it is true, that will mean an increase in oil demand overall, and specifically an increase in refinery capacity, which is where the bottleneck in oil production takes place today. There's no shortage of crude right now... there's plenty to go around, actually. We're actually producing more crude worldwide than ever before. It's in refined product that we see shortages due to a shortage of refinery capacity. Granted there are countries that use crude oil sales as a political tool, and there are other cases where production capacity is questionable because of piolitical unrest. But in terms of actual overall crude reserves and crude production, we're way ahead of where we were in, say, the 70s. Even if we had to buy our oil from third parties, the oil is still available. The real bottleneck is in the refineries.


Having said that, I do agree with your conclusion that it's not as big a deal as many would like to make of it. Transportation has been artificially cheap for a very long time, so there is a lot of potential to adapt to a more realistic (significantly higher) price for it. One by-product of that will be a reduction in the cutthroat competition between domestic (i.e. nearby) and foreign (i.e. distant) producers of everything from baby shampoo to steel. Consumers will pay more, but more of their dollars will end up in their their neighbors' pay envelopes instead of halfway around the world. Not such a terrible thing, it seems to me.

And since net incomes will increase domestically, there will be an increase in retail sales, which in turn jump-starts the whole economy, increasing employment, increasing wages, and increasing production based on increased demand. That increase in production will drive prices back down, and the greater earnings of the average American will keep up with any increases in oil prices. So yes, it really isn't that big a deal. (Unless taxes are increased, pulling the rug out of the jumpstarting economy by decreasing personal net incomes.)

Elliot

regarding the gold standard... David Frum addresses the emails he got from the Ron Paul crowd .


Right now, the United States is in the midst of a huge rebalancing of its external accounts. A big current-account deficit has begun the inevitable and ineluctable shift to a correspondingly big current-account surplus. The mechanism by which this will occur is a decline in the trade-weighted value of the US dollar. As the dollar buys less abroad, Americans will be constrained to consume fewer foreign goods and services - and foreigners will be induced to buy more from Americans.

With luck, this process will occur without a recession. The pace of domestic economic activity will continue brisk, dollar-denominated incomes will remain stable or even rise, unemployment may even decline as exports accelerate. This is what happened in 1985-86, the last time we saw a big drop in the value of the dollar.

All holders of dollar assets lose some of their wealth - but the burden falls most heavily on those with the most wealth to lose, who also happen to be the people who enjoyed the biggest gains during the previous increase in the value of the dollar. The burden falls least heavily on those with nothing to sell but their labor. This approach is not only equitable, but also surprisingly painless. Since permanently abandoning gold convertibility in 1933, the US economy has experienced far less economic volatility. Recessions are fewer and shallower (if sometimes longer).

Of course, that's not the only way to balance accounts. There is another, the way Americans experienced in 1837, 1857, 1893, and 1930-33. In those years, the value of the dollar was fixed to gold. (One dollar = 1/20 of an ounce.) If something bad happened in the world or US economy, the dollar could not adjust. A recession was like a car accident without bumpers or crumple zones - the full pain was conveyed uncushioned to the riders in the cabin. Domestic asset values collapsed. Unemployment jumped overnight to 15% or 20%. Homes were lost, businesses disappeared.

That's why the 19th century was the golden age (if I may be excused the expression) of monetary cranks. From the Greenback party of the 1870s to the William Jennings Bryan crusade in 1896 for free, unlimited coinage of silver (meaning, under the circumstances of the time, a deliberate policy of inflation), Americans rebelled again and again against the gold standard's habit of hurling America off the economic cliff once in every generation.

In 1896, ironically, the gold standard got lucky. Bryan lost, McKinley won. Almost immediately after McKinley's elections, gold miners first in South Africa and then in Australia found huge new goldfields. America got the inflation it needed without silver, thanks to a geological accident. From 1896 to 1913, the world economy expanded in what is known to history as "La Belle Epoque." Because that expansion was immediately followed by the catastrophe of World War I, it shines even happier than it really was. (There are doubts for example how rapidly the personal incomes of ordinary people really rose over those two decades.) And that happy interval casts an undeserved retrospective glow on America's experience with gold.

What the gold standard really is, fundamentally, is a rule that the nation's monetary stock should be determined, not by central bankers, but by miners. Why that should be regarded as an improvement by anyone, I cannot understand.

Let me add one final note. Even to treat the gold standard as a live option is to utterly misunderstand modern finance. It can never be restored, even if anyone were foolish enough to try, for a reason brilliantly explained by John Maynard Keynes almost nine decades ago:

The gold standard was ultimately sustained by a near universal belief that gold was money - and that nothing else was. There's a story told about the socialist minister in the British Labour government of 1929-31, who was stunned when his more conservative successors took Britain off gold in 1931. "They never told us we could do that!"

Well, now we all know that "they can do that."

Suppose that the US were on the gold standard right now. Suppose the country headed to recession. We would all know that the president and Congress of the moment could mitigate the recession by going off gold. We, each of us, would have to anticipate that possibility in our financial planning. So what would we do? We'd trade our "gold" dollars for commodity gold, and we'd hoard that - thus transforming a looming recession into an instant financial panic.

And since the government of the moment would have to anticipate that reaction, it would have to move even faster, dumping gold at the first tremor of bad news.

So you and I would have to act even faster still, never accepting "gold" dollars in the first place...

Which is why the whole thing is so irrecoverably dead.

David Frum's Diary on National Review Online (http://frum.nationalreview.com/)

The most serious increase is in the price of a necessity…food.

How do the big fascist buzzards feed their little fascist chicks!
Regurgitation Regurgitation Regurgitation Regurgitation Regurgitation
David Frum is a former speechwriter for President George W. Bush and a scholar at the American Enterprise Institute. A contributing writer for a number of rightist outlets (including the National Review Online, the Weekly Standard, the Wall Street Journal, Canada's National Post, and Britain's Daily Telegraph), Frum's articles typically offer ad hominem critiques of liberals and Europeans, espouse conservative social views, and push hawkish foreign policies—or a combination of all of the above. His July 11, 2007, National Review Online blog entry ("David Frum's Diary"),


Now here is someone that knows what is really going on.

Was last week's interest-rate cut an act of desperation? Absolutely. Meanwhile, it's obvious that using an applause meter to run the central bank is a terrible idea. November 07, 2007 -- 15:30 ETBy

BillFleckenstein

No shortage of ink was spilled last week about the Fed's quarter-point rate cut. Yet none of it acknowledged the big elephant in the room: Why in the hell was the central bank easing the federal funds rate with (1) the dollar at a new low, (2) oil at $90, (3) gold at $800, (4) virtually every commodity on the planet going wild and (5), despite government statistics to the contrary, inflation raging? Author, and father, of 'The Age of Turbulence'

Of course, we know why the Fed eased: because it's worried about problems in the financial system. But nothing better illuminates the Fed's position -- between a rock and a hard place -- than its rate cut last week. The Fed cannot fight inflation. It cannot provide for a decent currency. (If there's any levity to be found in the state of the dollar, you'll find it at the end of my column.)
The Fed's policy is to print money, print money and print more money. That's because of what then-Fed chief Alan Greenspan did for nearly 20 years. He bailed out every problem that came along, so we never had a small forest fire. Now we're getting set to have a giant forest fire.
In addition, the deregulation that Greenspan routinely championed is part of the current predicament, as it allowed folks to push problems down the road for a long time. Well, down the road just might be here.
Lower rates on demand
It's been an unfortunate journey that has brought us about as far as we could have traveled since Paul Volcker was chairman of the Federal Reserve.
That's the only conclusion to draw from a story last Tuesday by Wall Street Journal reporter Greg Ip titled "Why rate cut isn't a sure thing: Bowing to market pressure could prolong dilemma for Fed's policymakers." (But the next day, the Fed ignored the current level of inflation to curry favor with the stock market via the quarter-point cut.)
When Volcker was the chief central banker, the Fed, not the market, was in control. Now it appears to be the reverse. As Ip wrote, the decision for policy makers was "between the quarter-point reduction and no cut at all." He then went on to illuminate who's the boss:
"Both courses of action have risks. Perhaps the biggest is that the market's certainty that rates will be cut creates a burden on the Fed to deliver. Ordinarily, meeting market expectations isn't a goal in itself for the Fed. But the current environment is more fragile than usual, and thus the consequences of disappointing the market are potentially more damaging."
Toadies 'R' us
What's clear from this article: At least somebody at the Fed had indicated to Ip that he was concerned about how the stock market would respond to the Federal Open Market Committee decision, which indicates how much the Fed is in the back pocket of speculators.
Running the Fed by trying to pick the right interest rate was never a good idea, but that's what Greenspan did and what Bernanke does now. An even worse way to run the Fed is to be 100% on the applause-meter standard, which seems to be the path we're going down.
The prestidigitation that minimizes inflation
Look at last Wednesday's report on third-quarter gross domestic product. Our government would have us believe that inflation was running at only 0.8%, which allowed the growth of real GDP to be 3.9%. If the government had calculated the annualized rate of inflation to be 3.9% (probably a low estimate), then real GDP growth would have been zero. One number cannot be incorrect without the other number being incorrect.
So while the government and the Fed pretend the U.S. doesn't have inflation problems, countries around the world are acknowledging their own and trying to deal with them. Of course, we have the weakest currency, so whatever problems the rest of the world has, we have in spades, though we've jiggered the statistics to mask that.
Introducing the xera
Thanks to the suggestion put forth by a reader of my daily column, I have come up with the new name for our currency. Henceforth, it shall be called the xera. That's a combination of Xerox, for the piece of Xerox paper that it is; lira, which in the past was one of the world's chronically weak currencies; and, most importantly, the fact that it sounds like zero. That is ultimately where the xera is headed.

By Bill Fleckenstein
"Gambler Mae" made its debut in my Aug. 13 column. That was my name for the fictional entity I proposed should be created to bail out all losing trades everywhere, be they stock losses, racetrack losses or losing lottery tickets.

I modeled "Gambler Mae" on proposals being floated by our comrades in Congress who seem to think that the entire mortgage and housing sectors are deserving of a bailout -- despite the reckless behavior on display there that has brought us to where we are today.

Arm-Waving: When people take fluffy, subjective information and treat it as fact, to justfy a viewpoint.. . That they want to justify.

Goldilocksters: The people who take up the cause of a "not-too-strong, not-too-weak" economy, ignoring evidence to the contrary.

Housing ATM: When homeowners take loans against the inflated values of their houses and artificially pump up the economy with profligate spending.

Bubbleonians: Individuals who believe we are in a perpetual bull market. Alternatively called "U4ians."

3) I don't know if the value of the dollar has been mentioned on this thread, but I suspect it has. Some people will argue that the decreasing value of the dollar is a main source of the price increase in oil. I happen to disagree. And for proof, I offer the fact that oil prices are increasing EVERYWHERE, regardless of what the value of a particular currency is. Nevertheless, the falling value of the dollar makes that increase more evident here in the USA than elsewhere.


Elliot

Ill agree with this based on my experience. Here in Australia our economy is flying. The Aus $ is at a 30 year or more high (above 90 US cents). But petrol (oil) prices have been steadily increasing. And it is because of demand! Demand is high, particularly in China and India. Demand in these countries has effected costs of pretty much everything. Steel costs have risen 30% in the past couple of years. Copper has more than doubled! It is on the back of a booming china.

I think we are in store for some very lean economic times ahead. Very poor. Inflation down under here is out of control. The Government has failed to keep a cap on it and interests rates have risen 6 times in the past 18 months. Howard will most likely lose the election on this and the Iraq war alone.

The Governments and regulators are pi$$ weak too. They sit by and are dictated to by the oil companies. The regulatory watch dogs do nothing and the Governments are happy to cop their sling from the oil mobs.

Despite what they want us to believe economic management has been poor for a long time. And I imagine this is why the US is in its current situation!!

We are fixing to go into deep recession or depression. Austraila just raise interest 2 days ago. Get ready!

We are fixing to go into deep recession or depression. Austraila just raise intrest 2 days ago. Get ready!

Was that sarcasm mag?

Our government would have us believe that inflation was running at only 0.8%, which allowed the growth of real GDP to be 3.9%. If the government had calculated the annualized rate of inflation to be 3.9% (probably a low estimate), then real GDP growth would have been zero.
So how does this Fleckenstein guy receive his oracular knowledge that the inflation rate is actually (at least) 3.9% instead of the 0.8% reported by the Commerce Department? Is he alleging that the method used to calculate the CPI is defective, or that the Commerce Department is lying about the results?

The gains on the part of business and the banks are called “stimulation of the economy.” The losses on the part of the common person, or middle class, are call “inflation.” In this way the government economist pretends that these are two different things. They think they can have the first without the second. But these are not two different things. If a bank can print money and get richer by it, then you and I are getting poorer by it. There is no way to have “stimulation” of the economy without inflation. If a thief steals your money, his gain is your loss. You cannot have one without the other. You cannot pull money out of thin air, give it a value and say no one loses anything. For every action, there is a reaction. It is a very basic law. But then, I don't make the laws, the bankers do.
They tell us how much the dollar is worth and how high the inflation rate is.

The gains on the part of business and the banks are called “stimulation of the economy.” The losses on the part of the common person, or middle class, are call “inflation.” In this way the government economist pretends that these are two different things. They think they can have the first without the second. But these are not two different things. If a bank can print money and get richer by it, then you and I are getting poorer by it. There is no way to have “stimulation” of the economy without inflation. If a thief steals your money, his gain is your loss. You cannot have one without the other. You cannot pull money out of thin air, give it a value and say no one loses anything. For every action, there is a reaction. It is a very basic law. But then, I don't make the laws, the bankers do.
They tell us how much the dollar is worth and how high the inflation rate is.

This argument assumes that the economy must be a net-zero system. One person's gain must be another person's loss. Pure claptrap.

It is possible for EVERYONE to come out ahead. And it is possible for there to be economic growth without inflation.

By your argument, if I purchase a car from a dealer, the dealer has "gained" and I have "lost" in the deal. But that argument doesn't take into consideration the value of the car that I purchased. We BOTH gained in the transaction, and neither of us lost.

Similarly, when a "middle class" person spends money to purchase food, clothing, whatever, he gains because he is getting what he wants. The seller gains because he gets money. The government gains because of sales and income taxes. When prices go up (inflation), the middle class person has lost purchasing power, the seller sells less product, and the government gets less income. Everyone looses equally in that scenario. The result is that the seller lowers his prices to increase sales (deflation or a decrease in inflation), and/or the government lowers tax rates, thus increasing the purchasing power of the middle-class individual, and again, everyone gains. In the end, everyone gains or loses equally. The "gain" by one person does not result in the loss by another.

This idea that the economy has to have a net-zero outcome is simplistic and not based in reality. Sure, there are winners and losers in any economy. But the gains of one do not result in the losses of another. Gain does not result in loss.

Elliot

Bernake just said this morning that the economy will slow. What that means is that the dollars they have printed are so low in actual value and that prices are so high, the bubble has broke. I am not saying the dollar has no value at all, it has the value that the fed attaches to it. What you need to understand is actual value. Actual value of your labor and how the inflation of the dollar lowers that value. That is how they steal from you.
Now, we slide down, valuating the virtual inflated worth of the virtual inflated dollar towards the depression side. When the dollars value gets to the point that your actual wages, not the inflated aspect of your wages, makes you to expensive, you get laid off. Not you per se but many people will now be losing their jobs.
When prices go up, wages stay the same or maybe a slight increase over years. The inflated dollar causes prices to rise beyond your actual wage.
If you would look at it with an open mind instead of championing what you were told to be true, you would understand and see I am telling you the truth.
But, until you fully understand how money works, everything you state to be a fact is based on inaccurate information, making it mostly false.
Any government that steals their citizens labor is fascist. People that are brainwashed into thinking that is OK are fascist with them.
We are now on the downward swing of the fed system when in reality, we still have the same amount of product and services we had yesterday, minus the amount of oil we have used in the last 24 hours. Does that tell you something about manipulation?

Sorry, but the refinery bottleneck theory doesn't fit the facts. Crude oil is the raw material for refineries, and transportation fuels are the primary outputs. If a lack of refinery capacity were the main problem, crude oil would be selling at a big discount to refined products, refineries would be making money hand over fist and companies would be falling all over themselves to build more.

None of this is happening. Crude is expensive, refinery margins are modest at best, and new investment in refineries is also (appropriately) modest. The supply-demand shift that's happening is more fundamental, having mostly to do with huge demand increases in the developing world, especially India and China. We ain't seen nothin' yet. A company in India has just announced plans to produce a $2500 automobile.

Having said that, I do agree with your conclusion that it's not as big a deal as many would like to make of it. Transportation has been artificially cheap for a very long time, so there is a lot of potential to adapt to a more realistic (significantly higher) price for it. One by-product of that will be a reduction in the cutthroat competition between domestic (i.e., nearby) and foreign (i.e., distant) producers of everything from baby shampoo to steel. Consumers will pay more, but more of their dollars will end up in their their neighbors' pay envelopes instead of halfway around the world. Not such a terrible thing, it seems to me.

NEW YORK - Lobbyists for what could be the first oil refinery built in the United States since the 1970s are seeking help from federal lawmakers to hasten the permitting process, a spokesman for the company hoping to build the plant said on Thursday.

The company, Arizona Clean Fuels, hopes to build a $2.5 billion, 150,000 barrels per day refinery on desert land southwest of Phoenix.

A lack of US refining capacity has been blamed as one reason for higher gasoline prices, which soared to a nationwide record of $2.28 per gallon earlier this month. President George W. Bush, who has seen his approval ratings decline as gasoline prices rise, on Wednesday proposed allowing oil companies to build new refineries at abandoned military bases.

A spokesman for Arizona Clean Fuels said the company was not interested in building on an old military base.

Arizona environmental regulators granted the company hard-sought air permitting earlier this month. This week the company visited Wall Street to seek investors.

Besides financing, the plant still faces many hurdles, including obtaining a permit from the State Department that would allow it to receive crude oil from Mexico by pipeline.

The company also must prepare an environmental impact statement that requires it to determine how the proposed refinery and its daily operation could affect everything from any endangered species to Native American cultural remains.

"We're not asking for special exemptions or variances; we simply ask... could we get some assistance in speeding up that process and streamlining so it doesn't take another five years just to get the permits," said Ian Calkins, spokesman for Arizona Clean Fuels.

Bernake just said this morning that the economy will slow. What that means is that the dollars they have printed are so low in actual value and that prices are so high, the bubble has broke. I am not saying the dollar has no value at all, it has the value that the fed attaches to it. What you need to understand is actual value. Actual value of your labor and how the inflation of the dollar lowers that value. That is how they steal from you.
Now, we slide down, valuating the virtual inflated worth of the virtual inflated dollar towards the depression side. When the dollars value gets to the point that your actual wages, not the inflated aspect of your wages, makes you to expensive, you get laid off. Not you per se but many people will now be losing their jobs.
When prices go up, wages stay the same or maybe a slight increase over years. The inflated dollar causes prices to rise beyond your actual wage.
If you would look at it with an open mind instead of championing what you were told to be true, you would understand and see I am telling you the truth.
But, until you fully understand how money works, everything you state to be a fact is based on inaccurate information, making it mostly false.
Any government that steals their citizens labor is facist. People that are brainwashed into thinking that is ok are fascist with them.
We are now on the downward swing of the fed system when in reality, we still have the same amount of product and services we had yesterday, minus the amount of oil we have used in the last 24 hours. Does that tell you something about manipulation?
Does the fed arbitrarily choose a value to put on the dollar or do they base it on something concrete?

"Throw out all of the current valuation metrics."
That is what I just heard a market anaylist say on Bloomberg. Tell me, has everything we produce in the United States just become worthless? Or, could it be that all these dollars the fed prints are really what is worthless?
I still think the best products in the world are produced here in the U.S. So why does the value suddenly devaluate to the point of recession?
Because someone is squeezing the real value out and putting it in their pockets. That's all I can come up with. If you can give me a better reason then I will consider it. If you really understand how the ecocomy works I will consider it. If you are right I will be thrilled to know that the fed and the government are really looking out for our best interest.

They base it on their own interest. Interest. Pure profit from nothing. If the dollar was backed by gold, they would still print more dollars than gold in the belief that not everyone will redeem them for gold at the same moment. The legal tender laws gave them the right to place a value on a piece of paper. Regardless of what they say is backing it. The corporations own the oil. What does that tell you about politicians and huge corporations?

They base it on their own intrest. Intrest. Pure profit from nothing. If the dollar was backed by gold, they would still print more dollars than gold in the belief that not everyone will redeem them for gold at the same moment. the legal tender laws gave them the right to place a value on a piece of paper. Regardless of what they say is backing it. The corporations own the oil. What does that tell you about politicians and huge corporations?
I see, and how do they convince the rest of the world to accept that value? For instance, how do they convince Japan to accept that dollar value for the automobiles imported?

Don't trifle with me son. You figure it out if you really want to. Otherwise, keep giving everyone your limited view of the world.

The Japanese are in on the conspiracy.

Don't trifle with me son. You figure it out if you really want to. Otherwise, keep giving everyone your limited view of the world.
What your case lacks in the way of analysis and reasoning, it makes up for in it's vitriol and contempt for any explanation of economic reality that doesn't have a monetary conspiracy as its centerpiece.

Because someone is squeezing the real value out and putting it in their pockets. That's all I can come up with. If you can give me a better reason then I will consider it. If you really understand how the ecocomy works I will consider it. If you are right I will be thrilled to know that the fed and the government are really looking out for our best intrest.
Will you believe that I really understand how the economy works if I disagree with you? If I tell you I have more than one university degree in Economics, will you dismiss my ideas as elitist propaganda? If I tell you that there are good and sufficient reasons for most of what happens in the world of money and banking, and that the role and function of a central monetary authority is necessary and essential, will you take it as evidence that I've been brainwashed?

You give national governments and central banks way too much credit (no pun intended) for being able to directly influence, much less completely control worldwide economic activity. They're kind of like the Corps of Engineers, building levees and breakwaters in a sometimes desperate and often unsuccessful attempt to protect their shoreline from economic hurricanes and tsunamis that occur frequently, though unpredictably. It's not that they are entirely powerless or that their efforts to influence markets are never successful in the short run. But they are so far from being able to really control everything that the whole idea is laughable. The relative exchange values that are negotiated daily in all kinds of markets--products, services, credit, and currency--are simply the cumulative result of the billions of buying, selling, saving and spending decisions made by billions of ordinary people going about their daily business.

I know, it just doesn't get the juices flowing like a good conspiracy riff, but the truth of how things work isn't necessarily good movie script material.

So you say the fed has not printed too much money and that there really is no inflation and that since there is really no inflation, prices are at a normal level?

Executive Order 11110

AMENDMENT OF EXECUTIVE ORDER NO. 10289 AS AMENDED, RELATING TO THE PERFORMANCE OF CERTAIN FUNCTIONS AFFECTING THE DEPARTMENT OF THE TREASURY. By virtue of the authority vested in me by section 301 of title 3 of the United States Code, it is ordered as follows:

SECTION 1. Executive Order No. 10289 of September 19, 1951, as amended, is hereby further amended - (a) By adding at the end of paragraph 1 thereof the following subparagraph (j): '(j) The authority vested in the President by paragraph (b) of section 43 of the Act of May 12, 1933, as amended (31 U.S.C. 821 (b)), to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of any outstanding silver certificates, to prescribe the denominations of such silver certificates, and to coin standard silver dollars and subsidiary silver currency for their redemption,' and (b) By revoking subparagraphs (b) and (c) of paragraph 2 thereof. SECTION 2. The amendment made by this Order shall not affect any act done, or any right accruing or accrued or any suit or proceeding had or commenced in any civil or criminal cause prior to the date of this Order but all such liabilities shall continue and may be enforced as if said amendments had not been made.

JOHN F. KENNEDY
THE WHITE HOUSE,
June 4, 1963

-------------------------------------------------------------------

Once again, Executive Order 11110 is still valid. According to Title 3, United States Code, Section 301 dated January 26, 1998:

Executive Order (EO) 10289 dated Sept. 17, 1951, 16 F.R. 9499, was as amended by:
EO 10583, dated December 18, 1954, 19 F.R. 8725;
EO 10882 dated July 18, 1960, 25 F.R. 6869;
EO 11110 dated June 4, 1963, 28 F.R. 5605;
EO 11825 dated December 31, 1974, 40 F.R. 1003;
EO 12608 dated September 9, 1987, 52 F.R. 34617

The 1974 and 1987 amendments, added after Kennedy's 1963 amendment, did not change or alter any part of Kennedy's EO 11110. A search of Clinton's 1998 and 1999 EO's and Presidential Directives has also shown no reference to any alterations, suspensions, or changes to EO 11110.

The Federal Reserve Bank, a.k.a Federal Reserve System, is a Private Corporation. Black's Law Dictionary defines the 'Federal Reserve System' as: 'Network of twelve central banks to which most national banks belong and to which state chartered banks may belong. Membership rules require investment of stock and minimum reserves.'

Privately-owned banks own the stock of the FED. This was explained in more detail in the case of Lewis v. United States, Federal Reporter, 2nd Series, Vol. 680, Pages 1239, 1241 (1982), where the court said: "Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stock-holding commercial banks elect two thirds of each Bank's nine member board of directors."

The Federal Reserve Banks are locally controlled by their member banks. Once again, according to Black's Law Dictionary, we find that these privately owned banks actually issue money:

"Federal Reserve Act Law which created Federal Reserve banks which act as agents in maintaining money reserves, issuing money in the form of bank notes, lending money to banks, and supervising banks. Administered by Federal Reserve Board (q.v.)".

"The privately owned Federal Reserve (FED) banks actually issue (create) the 'money' we use. In 1964, the House Committee on Banking and Currency, Subcommittee on Domestic Finance, at the second session of the 88th Congress, put out a study entitled Money Facts which contains a good description of what the FED is: "The Federal Reserve is a total money-making machine. It can issue money or checks. And it never has a problem of making its checks good because it can obtain the $5 and $10 bills necessary to cover its check simply by asking the Treasury Department's Bureau of Engraving to print them."

Any one person or any closely knit group who has a lot of money has a lot of power. Now imagine a group of people who have the power to create money. Imagine the power these people would have. This is exactly what the privately owned FED is!

No man did more to expose the power of the FED than Louis T. McFadden, who was the Chairman of the House Banking Committee back in the 1930s. In describing the FED, he remarked in the Congressional Record, House pages 1295 and 1296 on June 10, 1932:

"Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal reserve banks. The Federal Reserve Board, a Government Board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt.

The depredations and the iniquities of the Federal Reserve Board and the Federal reserve banks acting together have cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States; has bankrupted itself, and has practically bankrupted our Government.

It has done this through the maladministration of that law by which the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it."

Some people think the Federal Reserve Banks are United States Government institutions. They are not Government institutions, departments, or agencies. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers. Those 12 private credit monopolies were deceitfully placed upon this country by bankers who came here from Europe and who repaid us for our hospitality by undermining our American institutions.

The FED basically works like this: The government granted its power to create money to the FED banks. They create money, then loan it back to the government charging interest. The government levies income taxes to pay the interest on the debt. On this point, it's interesting to note that the Federal Reserve Act and the sixteenth amendment, which gave congress the power to collect income taxes, were both passed in 1913.

The incredible power of the FED over the economy is universally admitted. Some people, especially in the banking and academic communities, even support it. On the other hand, there are those, such as President John Fitzgerald Kennedy, that have spoken out against it. His efforts were spoken about in Jim Marrs' 1990 book "Crossfire":

Another overlooked aspect of Kennedy's attempt to reform American society involves money. Kennedy apparently reasoned that by returning to the constitution, which states that only Congress shall coin and regulate money, the soaring national debt could be reduced by not paying interest to the bankers of the Federal Reserve System, who print paper money then loan it to the government at interest.

He moved in this area on June 4, 1963, by signing Executive Order 11110 which called for the issuance of $4,292,893,815 in United States Notes through the U.S. Treasury rather than the traditional Federal Reserve System. That same day, Kennedy signed a bill changing the backing of one and two dollar bills from silver to gold, adding strength to the weakened U.S. currency.

Kennedy's comptroller of the currency, James J. Saxon, had been at odds with the powerful Federal Reserve Board for some time, encouraging broader investment and lending powers for banks that were not part of the Federal Reserve system. Saxon also had decided that non-Reserve banks could underwrite state and local general obligation bonds, again weakening the dominant Federal Reserve banks.

In a comment made to a Columbia University class on Nov. 12, 1963, ten days before his assassination, President John Fitzgerald Kennedy allegedly said:

"The high office of the President has been used to foment a plot to destroy the American's freedom and before I leave office, I must inform the citizen of this plight."

In this matter, John Fitzgerald Kennedy appears to be the subject of his own book... a true Profile of Courage

So you say the fed has not printed too much money and that there really is no inflation and that since there is really no inflation, prices are at a normal level?
No, I didn't say there is no inflation, but I have no reason to believe that the 2% to 4% range that the Bureau of Labor Statistics has been reporting for the last several years is grossly inaccurate. These are not crisis levels by any means.

The idea of inflation is easier to understand than it is to measure. Complications include the constantly-changing mix of products (buggy whips, video games) and services (cell phone, internet) that make up the "shopping basket" of items whose prices must be sampled, as well as the changing attributes and features (fuel efficiency, cup holders) of established products (automobiles).

If the price of fuel goes up, but you decide to drive a more fuel-efficient car, are you a victim of "inflation"? The cost per unit of fuel, as well as the cost of the car may have gone up, but your cost per mile of transportation may not have, or at least not proportionally. If actual transportation cost does get really high, more people will decide that they can find a way to live closer to where they work or need to go most often.

Human ingenuity directed toward adaptation and substitution is the antidote to high prices, whether due to supply restriction, demand increases, or conspiratorial market manipulators.

If the price goes up and your real wage stays the same, are you a victum of inflation?
If a can of beans is 0ne dollor today and one dollar and twenty-five cents tomorrow, and your real wage has sunk because of it, what is the real price of that can of beans?
If you save money and the fed cuts interest rates and prints more money in their up and down, magic system of economics, do you have enough to retire on in 30 years?
Or, has a portion of your savings been siphoned off? Right out of the bank vaults by magic?

"If the price of fuel goes up, but you decide to drive a more fuel-efficient car, are you a victim of "inflation"? "
Or, is it just time to tighten our belts again? Here in the richest country in the world?

And please don't get me wrong, I'm not picking a fight, I'm picking your brain. I have wanted a university trained economists view on all this for some time.

Because someone is squeezing the real value out and putting it in their pockets.

How, exactly, does that work, mag? If the value of the dollar is being deliberately manipulated downward, wouldn't that also decrease the value of the dollar for the guy who is doing the manipulating? Wouldn't his dollars also be worth less? How does one decrease the value of the dollar for everyone else, but still gain value for themselves?

This idea simply doesn't make any sense. There is no mechanism by which it can be accomplished. It makes for good conspiracy talk, but there's no way for it to actually happen.

BTW, I also have a degree in economics and am a financial analyst by profession... so I have something of a background in all this economic stuff. That makes two people with economics training who disagree with your assertions regarding a conspiracy to manipulate the value of the dollar.

Elliot

With every dollar they print, there comes a built in profit for them, or debt to the borrower called interest. The national debt is 9 trillion because of the interest owed to the federal reserve. As our government borrows more dollor for this war, the interest grows= national debt. No?

And please don't get me wrong, I'm not picking a fight, I'm picking your brain. I have wanted a university trained economists view on all this for some time.
I'm glad you said that, because it had occurred to me to wonder what you were picking.

There is a difference between money and wealth. Wealth is the capacity to satisfy the wants of people who have something of value that they are willing to trade for that satisfaction. Wealth resides in the world's farms, forests, mines and fisheries, and in the complex web of transporters, processors, fabricators, distributors and retailers that turn raw materials into finished and intermediate goods and offer them for sale in convenient locations and at a moment's notice. Wealth also resides in the less-tangible but equally real capacity (tools and expertise) to provide a desired service to a satisfactory standard of performance, and in a timely fashion.

Money is to economic activity as motor oil is to an engine. Its role is to reduce friction so that the many moving parts can function without generating excessive heat and wear. It serves as a temporary storage medium for wealth, and as an efficient means for converting one form of wealth into another. That's all. Money does not have and does not need to have any intrinsic value. The one and only thing that money absolutely must have in order to serve its lubricative function in the economic engine is the confidence of (almost) all buyers and sellers that its value will be reasonably stable for a reasonable period. When that confidence disappears, economic activity reverts to barter, which is exceedingly cumbersome and inefficient.

Like oil in an engine, there can be too much or too little money in circulation. The "right amount" of money is the amount that exactly matches the needs for today's transactions to move real goods and services from producers and providers to users and consumers. There is no necessary relationship between the right amount of money to have in circulation in the world's economy and the amount of gold or other precious metals that may exist in the world, whether as refined bars in a vault or as ore still in the ground. Precious metals are valuable for a variety of reasons to a variety of people, but they are not money, they are commodities.

The rate at which goods and services are produced has a necessary inertia built into the process and can't change too suddenly. If the amount of money increases faster than the rate of production and consumption, a larger number of dollars will be divided up between a lesser amount of actual value created, so the price per unit of value has to go up. That's inflation. If the amount of money is increased slower than the rate of production and consumption, some transactions are delayed, inventories build up until the cost of holding them begins to be burdensome and sellers must reduce prices in order to move product. That's deflation. If producers have to reduce prices below a profitable level, they will reduce production levels for awhile. That's recession. If the reduction in the rate of production and consumption is large enough and persists long enough, many producers will go bankrupt. That's depression.

The role of the central bank is to dispense the "right amount" of money to properly match the rate of production and consumption in the economy. If they get it right, there is an acceptable degree of (not perfect) price stability, without recession or depression. Of course they occasionally get it wrong, sometimes knowingly, but more often out of ignorance or incompetence.

With every dollar they print, there comes a built in profit for them, or debt to the borrower called intrest. The national debt is 9 trillion because of the intrest owed to the federal reserve. As our government borrows more dollor for this war, the intrest grows= national debt. No?
There is nothing sinister or nefarious about the market for credit. The market rate of interest is our collective determination of the current value of waiting. For the saver, interest is the payment received for the service of waiting until later to spend (consume). To the borrower, it is the cost of consuming now instead of later, i.e. not waiting. The banking system's function is to facilitate this transaction between savers (both households and businesses) and borrowers (mostly businesses, plus some household borrowings, mostly for housing and transportation).

Like everybody else, when the government spends more than it takes in, it has to make up the difference by borrowing. The Treasury Department (not the Federal Reserve) does this by issuing and selling bonds, which are simply a promise to repay the face amount over a specified time at a specified rate of interest. The interest on the national debt is owed and paid to the purchasers of those bonds, whether they be pension funds, foreign governments, banks, insurance companies, or little old ladies. Although the Federal Reserve System does buy and sell US Treasury securities as part of the mechanics of managing the money supply, the interest paid from the Treasury to the Federal Reserve is a tiny fraction of the total interest paid on the national debt, most of which is held by private entities.

Of course, if the government weren't such a voracious consumer of credit, the money it borrows would be available for use by private businesses and consumers to support a somewhat higher standard of living at somewhat lower interest rates.

YouTube - Ron Paul on Federal Reserve, banking and economy (http://www.youtube.com/watch?v=ji_G0MqAqq8)

OG:

"Of course, if the government weren't such a voracious consumer of credit, the money it borrows would be available for use by private businesses and consumers to support a somewhat higher standard of living at somewhat lower interest rates"

Please understand this is from someone who has no economics background:

Is your statement consistent with Mag's concern over the growing deficit?

As the gov't overspends, uses credit, and piles on debt; is this to the detriment of private business and the consumer?

If private / small business cannot borrow [ or not borrow as much] to expand, or stay competitive, or stay in business could this start a cycle of recession and or depression?

Thanks in advance.





Grace and Peace

Is your statement consistent with Mag's concern over the growing deficit?
As the gov't overspends, uses credit, and piles on debt; is this to the detriment of private business and the consumer?
If private / small business cannot borrow [ or not borrow as much] to expand, or stay competitive, or stay in business could this start a cycle of recession and or depression?
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.

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?

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 losing 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.

YouTube - Ron Paul on Federal Reserve, banking and economy (http://www.youtube.com/watch?v=ji_G0MqAqq8)

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, explain to me if big governments do not control the world, who does?
Nobody.


How can a country possibly stay strong by spending more than it has or can generate.
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.


Small companies are being bought up by larger corporations. Farms are even being bought by large corporations. Seed companies are being bought by corporations.
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".


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.
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?


One can debate all day as to who is right and who is wrong from a book point of view.
I haven't got to that yet. I'm still just describing the facts of the situation.


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.
Times are tough all over. So it has always been, and so shall it always be. What's your point?

If our economy is so great and the federal reserve is doing their job why are people losing their homes?
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?

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.
It would be hard to overstate the advantage that the US has had relative to other nations because (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.

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?
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.