Tuesday, December 30, 2008

Why Oil Prices Have Dropped

Oil is a commodity, the price of which is controlled only by a few firms and nations. When the Republican Oil Party controlled the White House and both houses of Congress recently, oil firms knew they could jack up their prices at will, so long as demand was not impaired too much, because the Republicans wouldn't do anything about it.

Since August 2008, the price of a barrel of oil has dropped from over $140 to less than fifty dollars. Likewise, the price of a gallon of unleaded regular gasoline has swooned from about $4.25 a gallon to anywhere from $1.57 to $1.79. The price of oil and gasoline has plunged about 60 percent.

The demand for gasoline dove a little over 4 percent from November 2007 to November 2008. That only accounts for a little of the 60 percent drop in prices. So what accounts for the rest?

The Democratic Party will control both houses of congress and the White House in January 2009, and they are pushing for a green economy, which may leave little market for oil and its products. The oil companies are pushing the price down because they control that product and they want to head off the green revolution. Keeping gasoline so low may make it prohibitive to launch a successful green revolution and render oil as obsolete as a horse and buggy.

On the other hand, last month the Organization of Petroleum Countries (OPEC) announced the sharpest reduction of the supply of oil on record in order to arrest the rapid plunge in the prices of gasoline and oil. In other words, they decided to ensure that the supply did not equal demand in order to boost the price of its products. It's all manipulation. Supply does not equal demand, and never has.

In other words, when the price of gasoline is over $1.50 a gallon, the price is being manipulated upward. And it is likely the supply is rigged anytime the price is over a dollar a gallon, and always has been.

This suggests that gasoline and oil prices will remain relatively low until the Democrats lose a house in congress or the White House. In other words, prices will remain low for at least two years until the next election; and longer if the Republicans fail to gain control of one of the three branchs of government.

One further note: As I've mentioned before, this all proves that the concept of "peak oil" is an illusion.

Monday, December 29, 2008

Obama's Problem--the Bush Tax Cuts

The Tax Issue: Why I voted for Obama

I voted for Barack Obama because of only one issue: the Bush tax cuts.

Republican presidential candidate John McCain campaigned on a promise of extending Bush's tax reductions for the rich, as well as subtracting another 80+ billion dollars from their tax bills. Obama insisted he was going to kill the Bush tax giveaways sometime after taking office, and my research showed this was the only intelligent thing to do.

The Bush tax cuts are one of the major reasons why only slightly more than 2 million private sector jobs have been created since June 2001 (less by the time you read this). On a per year average, this is the most pathetic job growth for any business expansion in United States history, no matter what criteria is used. The tax breaks are also a major reason why per capita real family income plummeted over $2,000 per year since Bush took office.

Republicans assume that if you give the rich such favors, they’ll invest their money and magically create jobs; but that’s not how most publicly traded limited liability corporations work.

When Bush slashed taxes for the investor class, he gave them billions of dollars they wouldn’t otherwise have had. CEO’s hungrily eyed the newly available cash because the stock markets had experienced large losses since the end of the Clinton years. In a time of weak demand, CEO’s needed to entice the beneficiaries of Bush’s generosity into purchasing their stocks, thereby bidding up their prices. In industry after industry, they did this by pushing up profits and dividends; and they achieved this by shipping jobs overseas, by laying people off and by cutting or holding steady real wages, salaries and benefits.

This is precisely how the Bush tax giveaways placed downward pressure on the growth of jobs, wages, salaries and benefits. And that’s why a ballot marked for McCain was a vote for increasing joblessness during the current financial crisis.

And here is where those tax cuts especially come into play. The problem with the U.S. economy isn't the sub-prime mess. That's only a symptom of the real problem. The mal-distribution of income and wealth during the past thirty years has created the current economic meltdown (That’s another story).

Obama’s stimulus may drag the economy out of the recession sometime next year, but without repealing the tax cuts, there should be a relatively swift return to economic meltdown after a short and feeble business expansion.

That’s why the president-elect should raise capital gains and income tax rates closer to fifty percent for any income beyond $250,000. Less money would then be available to bid up stock prices, and this would relieve pressure on CEO’s to cut jobs, wages, salaries and benefits.

To see the obvious, one only has to look at what occurred when President Clinton raised the top tax rate: record job creation, middle incomes rising in real terms, and the already giant wealth and income gap began to close, however slightly.

We also can’t forget the economy boomed from 1940 through the early 1960s, despite a 91 percent top tax rate. But those tax codes gave the affluent class incentives to invest in ways that helped the middle class sustain and grow; and this allowed many millionaires to pay a real tax rate far below 91 percent.

Obama and the Democrats would be doing all citizens a favor by raising the top tax rates while giving the wealthy tax breaks if they invest their money in industries that ensure domestic job, wage, salary, and benefits growth. Ultimately, this is what an economy is for, and that’s why Obama should follow through with his pledge to immediately reverse Bush’s tax cut folly.

Tuesday, December 16, 2008

The Federal Reserve Lowers the Federal Funds Rate to the Lowest Level Ever

As per The Rigged Game, my prediction that interest rates would hit record lows became reality today when the Federal Reserve bank reduced its federal funds rate to .25 percent. Unfortunately, it will do little good since fewer and fewer people have money to borrow anyway, and the rate reduction doesn't do anything about the real problem with today's economy, and that is the mal-distribution of income and wealth that has occurred over the last thirty years.

Friday, December 5, 2008

The Rigged Game: News and Views

The Labor Department today announced that U.S. employers cut over 530,000 people from their payrolls last month.

Last Monday, the National Bureau of Economic Research concluded the U.S. economy had gone into recession in December of 2007, confirming what was obvious. However, it takes months to acquire the data and then to analyze it, so the researchers from the NBER should be excused from being tardy in making their call.

I wrote on these pages months ago that the NBER would likely look first at November 2007 as the beginning of the downturn. I was a month off the mark, but it was obvious by early 2008 that the economy had slid into recession. For some strange and unknown reason, some so-called experts insisted we were heading into a recession as late as last week.

I called November for a reason. The unemployment rate always rises before a recession begins. But the most it ever surges before the onset of a recession is .7 percent. In March 2007 the rate was 4.3 percent and in November 2007 it was 5.0 percent. So we had reached the maximum rate, plus all the bad economic news began hitting in December 2007. However, since then the Bureau of Labor Statistics has revised its monthly unemployment rates. The rate grew from 4.4 percent in March 2007 to 5.0 percent in December of the same year. That's still a sharp rise while in a business expansion.

This fulfills my prediction made in September 2006 that a recession would unfold somewhere between the fall of 2007 and the following summer.

The jobs losses will continue to mount and this contraction could be the worst since 1981-82, or even since the Great Depression.