Economists Not Fooling Anyone
Posted by: SB Veritas | 06/25/2008 7:05 AM
The headlines keep on coming.....
Inflation up, corporate profits projected down more than 10% next year, consumer confidence at sixteen year low, home prices decline record 15.3%, etc.
In past articles I have highlighted what is now taking place in the U.S. economy, and is going to continue for some time. The number of people who are in the what I like to refer to as the "Say it isn't so" crowd, has dramatically shrunk over the past several months. The reason in my opinion is the steady deterioration in the financial markets and continuing slide in housing prices with countless dollars in investor equity erased on daily basis.
The ensuing damage has already started to affect employment, with unemployment rates throughout the country ticking up at a hefty pace now. On the oil front, unchecked speculation on margin (with only a 5% capital requirement, meaning a $5,000 investment can control an oil futures contract for $100,000.) has pushed oil to repeated record highs, translating into higher gas prices. This higher price for energy has strangled consumers discretionary spending to a critical level, and led to higher inflation.
The higher oil price is now creeping into the cost of other consumer goods and services, with companies having no pricing power to mainatin their profits having to evenutally cut jobs or sustain losses.
Like it or not, we are in the middle of a prolonged slowdown. No government intervention or silver bullet can restrain what is occurring. In a previous article I referred to International monetary Fund projections that loan loss write-offs will near $1 trillion when all said and done.
Well, we are only one-third of the way there.
Predictions by economists of a significantly stronger economy and recovering real estate market next year is wishful thinking at this point. Talking the economy out of a recession isn't going to succeed,
Expect further stock price declines and credit defaults.
SB,
Oil prices represent several factor, including fundamentals (supply-demand), speculation, and exogenous factors (geopolitics).
You seem to be hanging too much of oil prices on speculators. And you seem to suggest that raising margin requirements (regulation) will "fix" the "problem".
Speculation is an important component of the market. The problem with oil speculation right now is that it is a one-sided trade, with too many betting on price rises, and too few on the other side of the trade.
It seems like raising margin requirements will reduce liquidity in this market and worsen it, not make it better. See here,
http://seekingalpha.com/article/78899-raising-margin-requirements-may-spike-oil-prices-higher
This is a Republican blog? Who is this writer? Speculators?!! Try reading a little Daniel Yergin, for starters.
You couldn't be more clueless on the causes of today's oil price. Look instead to the Fed, which is train-wrecking our currency, and Congress, which aids the dollar debacle through profligate spending while also screwing up the energy supply side through ridiculous restrictions on drillers and refiners.
Regarding raising margin requirements, there are 2 things to consider:
1) Real producers need futures contracts to hedge their production. You threaten to make this more expensive for them.
2) The CBOT raised margin requirements on agriculture contracts 3 months ago, and it provided absolutely zero price relief. I explained why that would be the case at the time: http://www.greenfaucet.com/agriculture/higher-margin-requirements-won-t-dent-ag-bull
Higher commodity prices do not cause inflation, they are the symptom of it. Inflation is always a monetary phenomenon, SB.
Get Congress and Helicopter Ben under control and oil prices will decrease dramatically.