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This analysis is over- simplistic and incorrect.
There is no 'inflation' when demand is in the toilet.
Where are the jobs? Where are the wage increases? Where is the 'excess' money? The money sits in reserve accounts @ the Fed.
The big, money center banks are on both sides of commodity trades. The provide margin for the longs and while being bankers for the exchanges themselves. This means they also have correspondingly large short positions. Te banks are almost 'net neutral' with regard to any commodity trade. They only have to hedge the difference between the margin exposure less their short position. The longs have 100% of the risk, not the banks.
The bottom line is the banks aren't driving the market rather they are the 'house' and receive the vigorish with zero risk.
Only hedge mismatches contain risk such as duration risk between longer dated Treasury interest swaps against T-bills.
Oil is demand driven, the interface between demand and consumption is to what degree return on consumption can service 'demand'. High prices are enabled by credit which is the tool of bidders. At the same time, credit is required to afford the resulting high prices. Once credit- driven prices become unsupportable by the returns earned on the output of petroleum use, the jig is up which is where we are now.
Credit does not come from the Fed or money center banks but is lent into existence by any business that keeps account books. Money is lent against future returns: the banks' returns @ the market level is from providing margin, at the economic level is from potential real output.
hat the money establishment provides is shill- speak supporting the myth of ongoing real output. "Tomorrow, tomorrow, tomorrow! The sun will shine tomorrow!"
Perhaps it will or it may be murdered in its bed. Analysts ignore peak oil at their peril. Geology does not care about analysis or wishful thinking, unicorns or Santa Claus. The analyst says the price is too high but someone is paying the price in the form of output, what matters is whether the return on that output is able to profitably support fuel providers.
The oil markets want to retest the $147 high price of 2008 to see if there is bull or bear market. I personally don't think the world can afford $145 oil and there will be a crash first. Remember, the higher the final spike price, the deeper and more profound the crash will be. With the Fed fully committed -- provided QE is still taking place -- there will be no force to hinder debt deleveraging which will accelerate across finance, one by one eliminating all the major and minor players.
The end of QE will show the same results as only $100b per month can stave off deleveraging and the cascade of debt- driven business failures. Continuing QE means a oil- price shock crackup and crash. The end of the diving board is nigh.
Inflation is wishful thinking or the lack of thinking. As long as the US imports 70% of its petroleum there will be zero inflation and zero dollar devaluation. There is no other way: if the dollar founders or ceases to be the world's reserve currency, the US ceases to be a developed industrial country.
Oil at new highs at some time is a no-brainer. Although the USA is world's largest importer, we are becoming less the driving force of prices on the downside. Output is slowing, peaking if you will. Emerging markets taking over demand. We are in the unique position to feel most of price increases due to our volume and lack of intelligent populace/response.
The largest consumer is the hardest to get lower consumption in meaningful amounts without great pain to the econ. Our political system, ie who funds elections, almost insures the lack of meaningful responses. It is unlikely in the age of tea party stupidity that we can accomplish much.
Open interest on 1 exchange. Nymex. Equals 1.5bn barrels. Daily consumption in the world is 80m.
The futures are nothing but a casino.
as long as i live long enough to see Geithner and/or Bernanke hanged , i will die a happy man
You have to look past to Big Banks to Timothy Geithner.
"And just to make things worse, the big banks have decided to take their cheap capital they borrow at basically zero percent , and invest into commodities, i.e., agricultural futures like Wheat, Corn, and Soybeans, energy futures like Oil and Gasoline (Fig. 2), and industrial and precious metals like Copper, Gold and Silver."
Small correction, uhh..that would be, invested heavily in PAPER PM's, and that's on the short side.
The major premise of the article that actual supply/demand for products is not operational is vastly flawed. Unlike stocks, commodity contracts have a short for every long. And many of these are suppliers of the goods. And many are speculators, which are needed to take the other side which results in price discovery. These markets adjust moment by moment to the winds of the moment, and thoughts of tomorrows.
The problem for large positions is that there are limits to daily price movement and a position is not guaranteed a graceful exit. All day and night trading present even more problems. The large spec or hedger or ETF all face these realities. For the small spec, he or she must sleep periodically so cannot supervise the risk as well as trading desks that operate much quicker and 24 seven.
All studies confirm that hedging opportunity reduces violatility. What is natural however, is fluctuations in supply and demand are constant and in some cases very quickly change. War, droughts, freezes, etc. Lately, outright hoarding, much like war time seems to be occuring.
"Riskless" one-way trading is heroin for the markets. Each fix requires another and another until the user eventually abstains for a short period to clean up, then overdoses and dies. Keith Richards is the only exception to this rule.
The ultimate blame goes to our govt leaders who clearly do not represent the best interests of the people but rather the elite via their lobbyists. Govt does not have and/or will not enforce adequate regulation or penalties. The quickest way to level the playing field is very simple: DEMAND FULL TRANSPARENCY by the govt and financial system so that the public can understand and recognize potential problems and demand action from our leaders (who are the last to care about anything but self-serving egomaniacal power trips and serving the elite).
Again, Ron Paul.
Citizens Under Attack
Everything Obama, Geithner, & Bernanke do, they do for The Banksters. Many people have lost homes. Many more are paying inflated rates on inflated properties which the banks refuse to refinance. Savers are getting lousy rates on CDs, but are charged 10%-24% on a credit card. From the top of the credit menu board to the bottom, The Banksters have FREE REIGN to suck as much blood out of the middle class as they possibly can. It’s a criminal plan that TARP was paid for by The Taxpayers to save the banks from extinction, only for them to revive and viciously attack the hands that feed them. Henry Paulson should be charged with Treason for using The Taxpayers' Money to re-arm The Banks of Mass Destruction. Everybody is a victim, even the homeowner without a mortgage, his equity is dropping in its entirety; he's losing more than the guy with a mortgage. Condos sit empty because banks don’t want to pay association’s maintenance fees, while those fees rise for the rest of unit-owners to make up the shortfall. The Banking Cartel is waging a war against every American Citizen, and it won’t be happy until every savings account is drained, every homeowner is broke & evicted, every credit card holder is paying 24.9% + $88/ mo. in overlimit and late fees, and every house is in their possession. Even the foreclosure process is financially draining for the owner, with insurance and electric payments continuing until property is taken out of owners’ name, an average of 2-3 years. (Upon repossession, the bank doesn’t book the loss until resale, artificially covering-up insolvency issues). Wake up people, its not us against each other, its Us vs. The Banksters who run their operation with impunity.
Further details of the covert TARP program, “Where the Bailout Went Wrong”, by Neil Barofsky:
You ain't seen nothing yet. Pre election year is upon us and Ben will continue to goose it so obamaramma gets locked into 4 more years of pain and agony. Thank god for 2 term limits
It is also much easier on the brain-housing-group to just assume that oil is not a finite resource and that there are endless fields of oil yet to be tapped. Better said, this is the route some folks take that don't do their homework. Do the homework! Check the meaning of EROEI and then follow up. Check how reliable the ME statements are regarding 'known' reserves. Also, check out what the real extraction rate is for known reserves. Then the next time you read an article about a 'huge' find of 20 billion brls you will know that the world consumes 33+ billion brls of oil a year and that the 'huge' field will have peaked at 10 billion brls of production. That is assuming that all the oil is actually extractable. Peak oil, check it out. It doesn't mean we are out of oil....it only means our production of oil has peaked and is slowly declining. This fact does not bode well for a global economy/financial paradigm that runs, indeed depends, on growth.
Option #3 - End QE now. Instead issue checks to every U.S. Citizen above the age of 18 in an amount equal to a pro-rata share of the funds otherwise being wished into existence for the benefit of nobody but the TBTF banksters. Make the checks two-party checks which would require the endorsement of a local bank at the time of presentment. Citizen goes to local bank. Asst. Mgr. there runs citizen's credit report. If it shows debt, citizen must endorse check, bank endorses check, bank takes funds and distributes them to creditors pro-rata. Maybe fine-tune that part to mimic distribution ladder in Chapter 7 bankruptcies. If citizen is debt free, bank gives all the money to the citizen.
Any bank that receives money through this program must by law apply receipts to bank reserves (if undercapitalized) or utilize it for small business loans (if solvent).
Yes, it would be inflationary, but it would be infinitely fairer than what has happened to date. The financially prudent get a reward to offset the loss of value to their savings. Debtors get some relief to their debt load. Bank reserves improve. Small businesses get loans.
The Fed is going to print money either way.
That would be seen as racist..Not by me, im just saying...
You are right. A little fine tuning is in order. Debtors won't have to see all of the check fly away to their creditors. They will get to keep $100.
This added feature will be expand the benefits of the program by boosting lotteries, liquor stores, and drug dealers.
BIS/FED/IMF + corrupt politicians + psyops/disinformation campaigns - Rule of Law
planned incremental takeover of America and total subjugation of its people.
I wonder if everyone has seen the recent demand from the Euro chapter of the Masters of the Universe that Ireland impose a special property tax on all Irish property owners in order to secure Irish debts. If this "test" case works, look for it to be applied to all Americans as security for the US debt.
I'm sure that our corrupt politicians will go along with this as the "only solution".
Think WTO. What just happened to Boeing? The UN has become captains to forge the World Domination agenda.
OECD --May 2010
More> Long link
The part I resent the most is that nobody is working on behalf of the American public. It's all been set up something like a cattle farm where the budgets of regular people are led in for slaughter at the will of the financial elite's machine.
I used to believe this was the situation. But this article fails to mention the fiscal point of no return. Now that all punchbowl removals are highly temporary, due to the debt monetization requirement, and the bank collateral reflation requirement, the commodity boom is permanent. Yes, it will be interrupted by brief fanciful interludes of confidence in the dying system. But, it will always come back like a recurring tumor until a system reset is imposed by the people.
I also think we are close to FED taking the punchbowl away but given the momentum of the market I doubt simple threats will be enough - perhaps option 1) will indeed temporarily create a $3.5 fall but what do you think will happen post 27th of April when it becomes clear that BEnron was bluffing? Does a $35 increase seem unrealistic? Regarding option 2) I can't see Obummy releasing the Strategic Petroleum Reserves - it is a one off joker which won't be wasted on $108 olie - what would they do if/when the conflict in the Middle East spreads to Saudi Arabia? Now the problem is that the Big Banks not only are buying up commodities, who do you think are buying all those ES futures? So is BEnron ready to crash the market and does he really have a choice? There won't be much to show for those $600bln except for some nice bonus payments on Wall Street by year end. If it wasn't so sad it would be funny!
Money dilution with the ok from any form of government office...is just another form of taxation...
Savers....those who used to have real money....are being scammed both on interest payments and by dilution versus the necessities of life...
Here is another way to look at it...
The public incurs debt....does not have the money to pay for it....and renegs not by openly reneging....but by what is happening as we speak....
Yes the US has defaulted on its debts.....and is playing the BIG CON on its own populous ............
The people are being treated more like a herd of brainless cows....
The big banks have to be broken up into smaller community banks....
OR JUST EXPECT MUCH MORE OF THE SAME....
TOO BIG TO FAIL....TOO BIG TO JAIL....SO WHAT DOES ONE DO WITH THIS MONSTER...EATING UP EVERYONE´S MONEY .....
"Money dilution with the ok from any form of government office...is just another form of taxation..."'
I agree with you. But that's not the point the article is making. The article says that monetary expansion by the Fed is NOT the problem. It's that the banks are using all that extra money the wrong way.
I think it's much simpler. Is it possible that the the huge supply of dollars is related to: (1) increasing commodity prices; and (2) a falling dollar? Trying to blame the banks for the sins of the Fed seems like adding an unnecessary set of facts.
The author is just another statist who cannot wrap his head around the fact that the problem IS the state. So they thrash around for someone else to blame--unions, banks, drug companies, welfare moms. Blah blah blah. An overly powerful government is at the heart of all big problems we confront. Solve that and a huge host of problems go bye bye.
It would be much more simple to enact a $70,000/year pay limit on all financial sector and hedge fund employees. Retroactive over the past decade.
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