A lot is being written and talked about oil and the dollar these days. After global warming, the talk of the town is what’s happening to the dollar and the increasing price of oil. I believe the explanation of both of these has not been reported.
We are reminded almost daily in the newspaper business sections that "the dollar is declining fast and is in deep trouble." The implication is that this is bad and the dollar needs to go up and fast. It is also implied that the dollar is sinking so fast it will soon be almost worthless and that our government, i.e. the Federal Reserve Bank, can’t do anything about it. However it seems to me that the declining value of the dollar in the world market place has been useful to level the playing field so-to-speak in international commerce, and successful commerce is what keeps countries thriving. Around the world there is a loss of business to American manufacturing industries and our growing exports are testimony to that.
I read recently that we had a 2.5% increase in production of durable goods in April. It was also written that after subtracting for transportation, production was actually up 4.2% in the non-defense related industries. I’m no economist but that seems pretty good to me.
A low valued dollar adds good paying jobs and generates a large amount of income for the country. If the value of the dollar went up, our growing export business would drop like a lead balloon. The dollar is still the currency of the most powerful economy in the world. We may not be liked because of that power but in spite of all the badmouthing the dollar gets from abroad and even in this country, dollars are still what most in the world still want.
This not to say that we don’t have problems, congress spends more money than we take in and the increasing debt can eventually hurt us but not just yet. Of course we need to get spending under control but the prospect of doing that is not high.
The Federal Reserve Bank has a lot of power to defend the dollar which must not be underestimated. The Federal Reserve chairman said recently that the dollar would be defended, though he added the words "if necessary."
This tells currency speculators that the Federal Reserve believes the dollar value is where they want it at the moment. If the Federal Reserve needs to, they have the power to drop the value of other currencies and raise the value of the dollar. As evidence of this power, recall what happened when Bear Stearns faced bankruptcy. Most in the financial world acknowledge that the Fed saved the world’s financial system from possible collapse.
As far as oil is concerned, I think the entire run-up of oil prices is a very carefully planned event by the oil suppliers; namely the Middle East producers. Really big money is financing the buying of the futures contracts to run up prices in this incredible fleecing of oil-buying countries. Very likely those responsible are the same ones that caused the 1973-74 gas lines and which changed the world’s financial power forever although the reason is different this time.
Oil producers have realized that eventually alternative fuels will force oil producers to reduce their price per barrel by a huge amount in the not to distant future so they must "make hay while the sun shines" so to speak. Very likely oil producers and those that enjoy huge profits from oil sales are using their huge money pools to run up prices that then result in higher prices per barrel even though costs of production have not changed.
In my opinion all the talk of running out of oil is nonsense. If we want it bad enough, we could do what the Nazis did in WWII and just make oil from coal like the German scientists did over 50 years ago; they maintained their entire war machine with synthetic fuel.
This price management is similar to the diamond business. Diamonds can be made now that are indistinguishable from natural diamonds and for very low cost. The diamond business is manages to control supply so prices remain high.
The oil business people have a carefully contrived plan to fleece the world of huge amounts of money that will then be used to buy all sorts of businesses like banks, insurance companies, food companies and almost any high grossing consumer goods company, regardless of its location in the world. This is in preparation for the time oil prices eventually fall so that income from these purchased businesses will replace the oil income.
Newspaper almost every day report about companies being bought. The money comes from banks and other financial institutions previously bought with oil money, often disguised to hide the oil giants and sovereign wealth funds of oil-producing countries.
The mechanisms exist to do something about this but they are not being used. You may remember as I do when the Hunt Brothers’ attempted to corner the silver market in the 1980s. The politicians and regulators (the Commodity Futures Trading Commission) cut them off at the knees. But, this time it is not two brothers doing the cornering, it is multi-trillion-dollar combines that know they have the power to prevent any action to stop them. Money is power and a huge amount of money is huge power.
Keep all this in mind the next time you read about our problems with a shrinking dollar and that we can’t do anything about higher and higher gasoline prices. We benefit when the dollar is weak and we can become oil-independent and drive down prices whenever we have the will to do so.