Wednesday, April 26, 2006

Scapegoating big oil is not a solution

Oil prices continue to rise. Why would anyone expect otherwise given current circumstances? Let us start with the issue of destabilising the production of oil. The invasion of Iraq harmed oil production and everyone knows it. Military invasions are not good for production under most circumstances. Then we have Bush sabre rattling with Iran pushing prices up even more. We can't factor out the fact that a large amount of oil, in Venezuela, is under the control of a lunatic either. The supply of oil is very tenuous at best. Between the bad policies of George Bush and those of Hugo Chavez the world's oil supply is in trouble.

It isn't about "peak oil production" either. It's the political disruption of production that is the main factor in pushing up costs. Government is the problem not the solution. Of course those who disrupt the supply demand scapegoats lest people realise their complicity. So now Bush, the most anti-market president in the White House in a long time, is calling for an investigation into the victims of his policies: the oil companies.

Bush is doing this for several reasons. First, the American people have figured out that he is utterly incompetent. It's not just a matter of being incompetent either. Bush sets out to impose bad policies. Bush has single handedly destroyed what little value the Republican Party had. And his approval rating is now around 32% meaning two-thirds of the voters are sick unto death of this boob. About the only people standing firm with Bush are the intellectual challenged within the fundamentalist religious camp. These fanatics don't particularly care about wars, the economy or anything else. They are moral fanatics who want to impose their religious beliefs on the nation no matter the consequences -- much like the Taliban -- so morality is the only issue they care about. Since Bush is one of them they will stay loyal under most circumstances. If these people end their support of Bush he will have no support left.

But we shouldn't forget that the price of oil is not just the supply and demand of oil. When we read that oil is $75 per barrel we are already talking about two factors. One is the supply and demand of oil and the other is the supply and demand for US dollars.

Oil is denominated in US dollars thus oil prices are a relationship between dollars and oil. Rising prices could mean three things. One is that the value of oil is increasing while the dollar remains steady. Another is that the value of the dollar is falling requiring more dollars to buy the same amount of oil. And the third is that the value of dollars are falling AND the value of oil is increasing.

Oil is not the only factor in the price of oil. The value of dollars is a major component as well. And the US dollar is under siege due to incompetent policy decisions from the White House in particular. That the dollar is in trouble is apparent. On April 24th the central bank of Qatar said they were building up their holding in euros and cutting back their holding in dollars. Only a few days before the Swedish central bank said they were increasing they holding in euros from 37 percent to 50 percent and cutting their holdings in dollars from 37 percent to 20 percent. Central banks around the world have been dumping dollars, pushing down its value, ever since Bush got into the White House.

The dollar is now trading at an all time low relative to euros. Russian Finance Minister Alexei Kudrin has questioned whether the US dollar can remain a reserve currency for the world considering the massive deficits which the Republican government has racked up.

Evidence that a significant amount of rising oil prices is due to the falling dollar are all around us but most Americans don’t bother to look. The yen has been going up in relationship to the falling dollar. And gold prices are increasing as well. Copper only broke the $5,000 per tonne level on March 17th. Yet less than a month later it had surged past the $6,000 per tonne level as well. Gold is now trading at it highest level in almost a quarter of a century and silver is trading at its highest point in 23 years.

Again all these are items that see their price increase because the value of the dollar is falling.

The blame for all this rests totally and completely with the spendthrifts in the Republican Party. Republicans control the Senate, the House and the White House. They write the spending bills, they pass the spending bills and they alone rack up the deficits. This is not to say Democrats are better but the Republicans have given the Democrats a free pass on this issue since the Democrats don’t control any branch of government.

In March alone the Republican big spenders took federal spending to $250 billion which is an increase in spending of almost 14% from just one year ago. The federal deficit shot up by $85.5 billion in just that one month period. Prior to March the record for federal spending was set in February when the government wasted $232 billion. March deficit was not an all time record because only one month earlier the deficit increased by $119.2 billion. In just the first six months of the current budget year the deficit has totalled $303 billion. The old record deficit for a full year was $413 billion, also established by George Bush. The White House projects at total yearly deficit of $423 billion but since they have accomplished almost 75% of that in just half a year there is a good chance the deficit will surpass the record the White House projects.

Everything is pointing to a meltdown for the US dollar and George Bush and his party deserve the credit. So there is no wonder when Bush joins the chorus of Leftists wanting to lay the blame on big oil.

Bush announced several measures to combat rising oil prices but none of them are significant or meaningful. He is mostly tinkering with inconsequentials. He continues his bellicose, almost invasion-mad policies, that destabilise oil markets thus pushing up costs. And his spending policies mean the dollar is haemorrhaging value at ever increasing rates.

Instead of accepting responsibility for his actions Bush proposes subsidies for a small number of hybrid cars, wants to investigate the oil companies and impose other short-term, inconsequential changes. But on the major issues he turns a blind eye. He has to do so since the major issues are the core policies he follows: world wide policing by the US government and massive spending at the federal level. Those two interventionists measures are the core of the Bush agenda and he is too stupid to admit his own role in the current crisis.