Oil Bubble

Oil prices are nearing $128/bbl today. The price of refined gasoline at the pump in the U.S. is bordering on (and above, in some places) $4/gallon. Hyper-inflation of gasoline prices in the U.S. market might not seem that onerous to other countries around the world, particularly because we enjoy a relatively low rate of taxation on oil products - in fact, as pointed out before, the federal gas tax in the U.S. is the lowest (by far) in the industrialized world. Still, the price levels that are being experienced right now simply can’t - and won’t - last. The oil price bubble is ready to burst.

George Bush was in Riyadh today, holding hands with Saudi princes again and asking, nay begging, for an increase in production as a method to drive down the price of crude. Naturally, the Saudis just laughed at him. They claim that there is no issue with laws of supply and demand, and that they’re pumping out enough oil now to meet market demands. And of course, that’s probably true. There is no “shortage” of oil in the market, per se.

Again, the pump price that we in the U.S. are paying doesn’t faze the rest of the world, because even at $4/gallon, gas is relatively inexpensive by global standards. But there’s another way to think about this.

Fuel prices in the U.S. have essentially doubled overnight. Not literally, but for market absorption purposes, yes. The quick increase in the pump price is translating into increased costs for everything in the U.S. market, because it costs much more money to transport food to the local supermarket, it costs more to run the machines that harvest and make the food, it costs more to fly the airplanes that get us from point a to b, and…well, I’m not telling you anything you don’t know.

What I will tell you is that it’s not sustainable. While the faux inflation index says that inflation isn’t a major concern at the moment, one trip to the supermarket will tell anyone differently. When the price of a standard loaf of Wonderbread is nearly $3, and bananas are now going for nearly $1/lb, the inflation that most of us have to deal with on a daily basis is out of control.

Now, consider what average person’s annual pay increase this year will look like - it’s not going to be 20% to keep up with the cost of living (or making a living). It would be a real surprise if the average worker’s pay raise this year tops 3 or 4%. So. Food goes up 20%. Fuel (all types) increases at a much higher rate. Wages are stagnant.

Something has to give.

Following the OPEC oil embargo in the 1970’s, I can clearly recall Sheik Yamani (the Saudi oil minister at the time) saying that when the U.S. got it’s act together, and drove down consumption, prices would naturally fall. And, he was right. The price of crude did eventually drop back from the mid-20’s to the low teens, because consumers in the U.S. were forced by circumstance to reduce demand. And the Saudi’s are right this time, too - they’re pumping enough oil to meet demand. But at this moment in time, the U.S. consumer economy is still solvent enough to pay $4 to $5 per gallon. But it can’t last. It can’t.

That’s why I think we’re at the peak of the oil price bubble. There are already troubling economic signs that indicate U.S. consumers are significantly retracting their personal spending, because income simply isn’t keeping pace with cash out-flow from the average American. People are already being forced to make hard choices on just about everything that requires taking money out of the wallet, because more and more money is being required just to pay for basics that can’t be cut.

Americans are draining their savings. Many have already tapped out whatever equity they had in their homes. Credit cards are maxed out, and credit defaults of all manner are at record levels. At some point, the money (or access to money) just runs out for most people in the working class, and there’s no way to make ends meet beyond the basics.

This coming summer, we’re going to find out just how close we are to “there”. Since economic indicators lag actual consumer spending trends by months, we’re not going to know when the crash has happened until American society is already hip deep in trouble, and by that time, it’ll be too late for a lot of people. There’s only one upside to this scenario:

That’s when the oil bubble bursts. Common sense tells me that we’re very close. Prices have just gone up too quickly not to come crashing back to earth. I wouldn’t buy oil futures at this time in history anymore than I would buy Floridian swamp futures (but then, maybe that’s why I’m not an investment analyst).

When the bubble does burst, maybe then we’ll be dealing with supply issues, but that’s certainly not the case right now. An neither are taxes. Consumption and the low value of the U.S. dollar are driving the market right now, pure and simple. The fall is going to be a hard one.

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A Conversation of Heart

BY TAYLOR MARSH It was just between Hillary Clinton and bloggers who have her back. I taped it for all of you so you could hear it for yourself.Peter Daou introduces the call, which[...]

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http://www.taylormarsh.com/archives_view.php?id=27701

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Obama calls McCain "naive" and "irresponsible"

Don't make McCain mad. You won't like him when he's mad.

Lumping McCain together with President Bush, Obama declared: "If they want a debate about protecting the United States of America, that's a debate I'm ready to win because George Bush and John McCain have a lot to answer for." He blamed Bush for policies that enhance the strength of terrorist groups such as Hamas and "the fact that al-Qaida's leadership is stronger than ever because we took our eye off the ball in Afghanistan," among other failings.

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Obama calls McCain "naive" and "irrerponsible"

Don't make McCain mad. You won't like him when he's mad.

Lumping McCain together with President Bush, Obama declared: "If they want a debate about protecting the United States of America, that's a debate I'm ready to win because George Bush and John McCain have a lot to answer for." He blamed Bush for policies that enhance the strength of terrorist groups such as Hamas and "the fact that al-Qaida's leadership is stronger than ever because we took our eye off the ball in Afghanistan," among other failings.

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Barack Obama Responds To Bush and McCain

Barack Obama has said for months that he "looks forward to having that debate with John McCain", usually referring to issues where Democrats are perceived as weaker than Republicans. In this video clip (h/t TPM) Obama responds to George Bush's[...]

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http://feeds.feedburner.com/~r/mydd/~3/291808217/763

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Obama: Bush's 'Failed Policies' Strengthen Hamas,
Iran

Obama hits back:

WATERTOWN, South Dakota (Reuters) - Democratic presidential front-runner Barack Obama said on Friday President George W. Bush's "failed policies" had strengthened U.S. enemies like Iran and Hamas.

Responding to Bush's comment on Thursday that those who want to talk to Iran were like Nazi appeasers before the Second World War, Obama accused Bush of "exactly the kind of appalling attack that's divided the country and that alienates us from the world."

Obama did a terrific job of tying the albatross of Bush around the neck of McCain:

"If George Bush and John McCain want to have a debate about protecting the United States of America, that is a debate that I'm happy to have any time, any place, and that is a debate that I will win because George Bush and John McCain have a lot to answer for," Obama said in a campaign speech in South Dakota.

View it:

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Texas NotesMindless Immigration Checks & Mindless
Jellyfish

Here are some Texas notes political and otherwise—U.S. Customs will be checking the citizenship of people evacuating the Rio Grande Valley area in advance of a hurricane. Undocumented persons will be taken to separate shelters.It’s clear that people will choose to ride out the the storm and take their chances. What an mean, dangerous and not well thought out policy.   The website of [...]

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http://texasliberal.wordpress.com/2008/05/16/some-texas-notes/

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Some Texas NotesMindless Immigration Checks &
Mindless Jellyfish

Here are some Texas notes political and otherwise—U.S. Customs will be checking the citizenship of people evacuating the Rio Grande Valley area in advance of a hurricane. Undocumented persons will be taken to separate shelters.It’s clear that people will choose to ride out the the storm and take their chances. What an mean, dangerous and not well thought out policy.   The website of [...]

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http://texasliberal.wordpress.com/2008/05/16/some-texas-notes/

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Journalist asks FBI director hard-hitting
question: ‘So I can’t ask you to be my Facebook friend’

Today, FBI director Robert Mueller spoke at the National Press Club. The journalist hosting the event asked Meuller if he had ever posted anything on the Internet. When Meuller said that he had not, the journalist replied, “So I can’t ask you to be my Facebook friend?:

Q: Have you ever posted anything on the Internet?

MUELLER: That is a very good follow-up question to which the answer is no. […]

Q: So I guess I can’t invite you to be my Facebook friend?

[LAUGHTER]

MUELLER: No. I will go look you up on facebook now.

Q: You’ll love the picture!

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When face-to-face with Washington’s leaders, the media sure knows how to ask the most important questions.

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Handbasket Digest: Bucket Edition

While research etc. proceeds on the Maddow Movement, I intended to do a little report on our recent progress down the slippery slope of the Bushco and Friends induced/aided slow slide of civilization back to savagery. Short for "going to hell in a[...]

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