Wednesday, October 31, 2007

A Respite...of Sorts.

More evidence, as if we really needed it, (see yesterday's suddendebt blog entry) has arisen asserting that a recession is all but inevitable. While some of us have wondered how oil at 90+ dollars a barrel could manage to translate for so long into sub $3.00 dollar a gallon gas, as the sudden debt entry elucidates, those days are numbered. The fearsome pass through costs of vastly higher raw commodity prices that have heretofore been somewhat restrained are coming our way sooner rather than later, just in time, I imagine, to deleteriously effect the vital Christmas retail shopping season.

The silver lining is that we stand an excellent chance of seeing a cessation in the seemingly inexorable rise in crude prices as the U.S., and then the rest of the planet, experiences a massive economic contraction. Of course the reality of Peak Oil will put a floor under the price of crude oil, but where that floor will be is hard to say. If the all but certain economic contraction morphs into a severe recession or worse, the floor could easily be half again as low as it is presently. Yes, that's right, $45.00 dollar a barrel oil. Sounds cheap, doesn't it? Such a price would be a blessing of sorts, as it would present a last chance for certain gluttonous nations to re-fashion their energy infrastructure. Don't count on the unamed energy gluttons taking advantage of such an opportunity, however, as they are more likely to use the lower prices to return to business as usual and to hoard. Such is the nature of individuals and nations.

I would be remiss if I didn't mention that today is Fed day. Will they or won't they, lower rates that is? To date, and to my knowledge, this question has never been asked about the prospect of The Fed raising rates. Funny that. I operate under the simple, but I hope not simplistic premise, that as the Fed does the bidding of its masters on Wall Street, not Main Street, that the Fed will administer the short term cost of the dollar lower. The only question is by how much? The consensus is a "safe" .25 point reduction in Fed funds. Why safe? Once again, the conventional wisdom would say a .25 point is enough to soothe the Wall Street crowd but not enough to send the dollar swirling the bowl. We'll see, but please know that it's a load of puffed up nonsense, since in truth cuts in the cost of short term borrowing can't even begin to address the massive insolvency that resides just below the fragile crust of the entire financial system, a system that in its toxic, bloated, condition, now manages to hold our entire economy, to the extent it hasn't become our entire economy, hostage.


DED said...

Gas is back to $3/gal here in CT. I would think that it'll keep going up as there's always a bit of a delay in the price of oil being reflected at the pump.

DED said...

One other thing: how can $97 oil mean a bullish day on Wall Street? Do they not realize that those higher energy costs are going to get passed on to businesses and consumers? Or are they just seeing the increased revenues for oil companies?