Submitted by Giordano Bruno of Neithercorp Press
Oil Juggernaut Unleashed
The prevalence of crude is undeniable. You might dabble in green-think cultism or you might drive an obnoxious monolith of a Hummer (what I like to call an “overcompensation-mobile”), but neither philosophy of consumption dares to contradict that this world runs on oil. Petroleum is used in the manufacture or shipping of almost every industrial product on the planet, and even many agricultural goods. Therefore, it behooves the public to seriously consider the ramifications of oil price and its underlying effect on the entirety of our economy. Even minor increases holding over an extended period of time cause economic reverberations that can be felt for years afterwards. Financial and social adjustments to commodity inflation can sometimes take decades if the event is historically unprecedented. Petroleum is a foundation ingredient, it is energy itself; the higher its cost, the greater the cost of every other product we use, and the worse off our financial structure is. Period. There is no scenario yet experienced by any nation in which oil inflation actually benefited the masses or the overall economy, even in countries that sell oil!
Americans have had a small taste of the tensions involved in an oil crisis, during the 1979-1980 Iranian snafu, and the massive gas spike of 2008, but these events are nothing compared to the steamrolling inflation we are soon to see at the pump in the next couple of years. Let’s examine why…
OPEC Ready To Let Oil Run Wild
At the writing of this article, oil stands at around $91 a barrel, still below our prediction during the summer of $100 by the end of 2010, but already a 30% increase over the $70-$75 average we enjoyed in the middle of the year. Anyone who believes that prices will even out or fall over the course of 2011 should take note of the heavy press coverage on the statements from OPEC representatives over the past couple months. The Middle East has made it quite clear this winter that $100 a barrel is not just possible, it is a certainty:
The illusion underlying the OPEC statements, however, is that the current price rise is completely under their control. This is not the case. In fact, the nearly $150 a barrel plateau we witnessed in July 2008 will seem like a quaint memory not long from now, primarily because the factors involved in today’s petrol valuation are much more systemic and violent; rooted in a snowballing devaluation of Western currencies, instead of the traditional influences of supply, demand, or even speculation.
The recent comments of Kuwait’s oil minister that “the global economy can withstand $100 oil” are, of course, also disingenuous on a couple levels. First, the global economy is in dire straights and riding the wave of a convoluted “recovery” built on fiat and fantasy. $100 oil will only bring the illusion crashing down as the public realizes the true effects of long term inflation in prices, and the sales of goods begin to falter even further than they already have. Second, oil will NOT stay at $100 for very long, so the suggestion that we can “withstand” such a price is rather irrelevant. Essentially, OPEC is losing its ability to reign in or stabilize gas at a reasonable cost due to the crumbling dollar, and so, they have decided to raise rates to offset dollar devaluation while attempting to change the definition of what “reasonable cost” is. They admitted as much back in October:
The key here is the dollar and its inevitable demise, which the establishment is trying desperately to hide until the last possible moment. Over the next year we are likely to be buried in a deluge of excuses, half-truths, and lies, all meant to divert attention away from the word “inflation” as the masses begin to question just what the hell is going on.
The Real Reason You Were Robbed At The Pump
Many factors can determine the ascent of gas prices, and this is where confusion arises in today’s market, and propaganda begins to take root. In 2008, the historic march of oil costs was blamed primarily on “speculators”, commodity investors who buy up petroleum with no intention of actually using it, thereby creating a false sense of scarcity in the market and driving up prices artificially. This was, for the most part, what really happened.
Another cause of oil increases is the natural reduction of global supply in the face of rising demand. An American economy running on all cylinders would necessitate greater supply and a higher price if that supply is insufficient.
Essentially both triggers are dependent on the fact of scarcity, engineered or legitimate, in order to cause price spikes. Neither trigger is applicable in today’s market, where currency weakness is the central determinant, yet these are the arguments we are hearing and will hear more of as we are fleeced at the pump through dollar devaluation. Below are a few MSM articles which promote the supply/demand tall-tale, including announcements by the IEA (International Energy Agency) claiming that economic rebound is the culprit:
The “recovery” argument in terms of oil demand is obviously laughable to those of us in the Liberty Movement and alternative economic research, but to those who base their entire view of our financial health on the meanderings of the Dow, recovery certainly seems plausible.
The truth is that the stock market is the LEAST reliable indicator of economic strength, especially during major fiscal downturns. The Great Depression was blatant proof of this, but the smoke-and-mirrors magic show has been elevated to a new level today by the introduction of quantitative easing measures by the Federal Reserve. Most intelligent financial analysts have been crying foul for a couple years now over these monopoly money injections, and have pointed out that a substantial portion of the funds are being pumped into stocks in order to create a zombie market; a kind of “Night of the Living Dow”, a market that has diminished real investment and relies almost solely on constant formaldehyde-like fiat transfusions from the Fed and the government. In fact, Charles Biderman of the investment research firm ‘TrimTabs’ recently announced on CNBC (of all places) that after two years of investigations into capital inflows into stock markets, his conclusion was that retail investors have quit stocks, and the only thing holding up the Dow today is the Federal Reserve itself:
This shows that the stock market indexes cannot be trusted to glean proper information about recovery (or a lack thereof), but what about other indicators? The Consumer Metrics Growth Index, produced by the Consumer Metrics Institute, is a proven leading indicator of GDP and of market movements. Its accuracy is owed to its close tracking of consumer spending, not just in retail stores, but also web sales. Consumer spending makes up about 70% of the U.S. economy, and is thus a much more reliable litmus test for overall financial health than manufacturing data, which is what the government has been using to gage current growth and future trends since 1937 (back when manufacturing actually counted for something in this country). This means that the Consumer Metrics method is far more up to date with the functions of the modern American economy. According to the CMI index, the U.S. has been on a negative growth curve since the end of 2009 which is equal in severity to the credit collapse of 2008, but much longer and more pronounced:
As you can see in the chart above, whatever recovery we thought we had in progress during 2009 ended quite abruptly, a temporary jump in economic activity likely inspired by the printing press free-for-all initiated by the banker bailouts. How many trillions were pulled out of thin air and dumped into corporate banks and stocks just to conjure than one short lived moment of false hope? We still haven’t received total disclosure from the Fed on this, nor will we until a full audit is initiated.
Remember housing values? That vital gauge of U.S. economic health that mainstream media pundits have been calling a bottom on every month for the past two years? Well, prices still haven’t bottomed yet, and now they are expected to decline continuously through 2011:
What about durable goods? That market should be hopping if a rebound is in progress, right? Nope. Durable goods are experiencing a substantial decline, similar to that which occurred during the plunge of late 2008 and early 2009:
So, to get to the point (as if it is not painfully obvious); there is no recovery! I don’t care how often CNBC, MSNBC, FOX, or CNN, pull skewed data and automaton analysts from their ghastly dungeon of disinformation, the fundamental dysfunctions of the American economy remain unchanged. Therefore, it is outrageous to insinuate that a “recovery” is to blame for rising oil prices.
The next natural step in the rebound contention is to suggest that it is actually a heightened demand in the burgeoning economies of developing nations like China that is driving crude values to the max. That would be a clever redirection IF one could show that Chinese economic policy was having a meaningful effect on crude markets. In reality, the latest Chinese policy changes (which effect the consumption and demand of the entire country) have had little sway over most commodities, including oil.
A perfect example is the recent surprise Christmas announcement by China that their central bank would be raising interest rates yet again in a vain attempt to combat price inflation. Rate increases usually signal to global investors that capital flows will tighten, and less money will be available in the system, meaning demand will fall and so will prices. Mainstream pundits for the most part called for a negative effect on commodities, especially oil. No such effect occurred. In fact, gold has spiked in value and oil has held strong at $91 a barrel. If Chinese demand was the primary cause of oil inflation, then such an announcement should have made some kind of visible impression on crude, but nothing came of it…
Oil consumption in the U.S. imploded in 2008, 2009, and 2010:
Oil consumption around the world suffered a severe decline in the third quarter of this year:
OPEC has stated that there is no supply shortage and that wells will run at current capacity. The data seems to support their claim. There is no scarcity of oil, and demand has only fallen over the past three years. So, what is causing crude values to rocket towards $100 a barrel?
There Will Be Blood
Since oil is widely traded in dollars, it is perhaps the commodity most sensitive to dollar inflation. If supply and demand (real or imagined) are not the acting players in the current oil climb, then we are left with only one other option; currency devaluation. As we have covered in past articles, commodities across the board are tearing towards historic highs, while global demand for goods continues to fall. Oil is no exception. Establishment economists in the U.S. and in most of Europe have avoided the dollar collapse issue like Lyme disease, but other nations around the world will not. OPEC has been expressing concerns over dollar weakness and openly suggesting dropping the dollar peg since 2007:
In 2008, the U.S. government was fully aware of discussions by Arab nations to depeg from the dollar and move to a basket of currencies (think SDR’s), and even “greenlit” such decisions by suggesting we “did not necessarily need Gulf support for our currency”:
In an investment conference in Saudi Arabia in 2008, Alan Greenspan himself suggested that Gulf States would be better off dropping the dollar:
In 2009, writer for The Independent, Robert Fisk, reported that he had received insider information that OPEC nations along with China, Russia, Japan, and France, were engaged in rather clandestine meetings in an effort to drop the dollar for international oil trades:
Little credence was paid to this report by most of the MSM, but today China and Russia have already dropped the dollar for all bilateral trade. How long would it take to position a country to decouple from the dollar, from planning phase to implementation? Two to three years perhaps? With the Federal Reserve’s QE2 in full swing, I believe OPEC nations will soon follow. The dollar peg would otherwise ravage export dependent countries, especially oil producers.
Extreme oil prices pummel more than just our wallets; they also strike our cultural psyche. Those people who found a way to ignore the signs of economic collapse until now will discover that they cannot avoid the icy reality of the gas pump. When those digital dials spin past the $5 mark before pouring out even one gallon of unleaded, I suspect people will be generally pissed. This is why the establishment media is oozing with oil disinformation and demand rhetoric now. It is an attempt to “vaccinate” the masses against inflation in the future; to redirect their anger towards a false cause and effect scenario. It has long been my concern that the speculation induced gas spike of 2008 was, in fact, a deliberately engineered event; a staged price vault meant to condition Americans to passively tolerate the very real dollar disintegration and hyperinflation which would eventually occur later down the road. When crude prices race towards $150 a barrel once again, does anyone really doubt that the MSM will bring up “speculators” as the villain? And, more importantly, does anyone doubt that the rest of the world will blame the actual trigger; the fading Greenback?