Republican Controlled US Federal Reserve Partly Responsible For Oil Price Explosion
Why are oil prices so high? An article in AsiaTimes offers an interesting analysis about the problem.
A few points: "There is no end in sight to the recent strong gains in oil prices, endangering world economic growth and food equilibrium. This prediction is supported by our own modeling, which indicates that prices are more likely to go up than down in the near future. Could this mess have been avoided, why did it come about and want can be done?
"The short answer is that the US Federal Reserve was in large part responsible for the oil price explosion and its volatility, while two successive US administrations have created the oil supply shortfall, again adversely affecting oil prices.
"But some analysts miss the wider picture on both the demand and supply side. The demand for oil and gas has been driven by a number of other factors. The Fed has injected an unprecedented level of liquidity into the market. Since 2001, by adopting an interest rate rule, the Fed has followed the most expansionary monetary policy in its history, setting interest rates at low levels and real interest rates at negative levels.
"A depreciating dollar and rising oil prices have gone hand-in-hand. Oil prices are quoted in dollars; a falling dollar results in an increasing dollar price for oil. Given a falling dollar, oil producers and others with surplus dollars are reluctant to store their wealth in dollars but instead are diversifying into other currencies, largely the euro and the yen, again putting further pressure on the dollar and again driving up oil prices; or in some cases producers cut back output as they are reluctant to hold more dollars.
"But the real issue that seems to have escaped all these oil analysts is the overriding reason why additions to oil supplies (and the capacity to produce more oil) have been so small in recent years? This can be laid at the door of the White House; the George W Bush administration and its predecessors have caused the current supply shortage through their policy stance towards the Persian Gulf region and especially towards Iran and Iraq.
"The world community must face up to a number of stark facts. The global energy squeeze is not going to go away any time soon. It has been years in the making. Fed policy has had adverse effects on the demand side, resulting in escalating prices and volatility. US policy towards the Persian Gulf region has exacerbated current and long-term supply conditions."
A progressive US foreign policy in the Middle East is absolutely essential in helping to bring about realistic solutions to the problems in that region caused and/or made worse by the stupid, terrible Bush jingoistic policy of militarism, invasion and occupation, hatred, and constant neocon saber rattling.
However, It still remains imperative for the US to reduce its dependency on oil; manufacture maximum fuel efficient cars; put into high gear the development of solar, wind, and tide energy sources; autos that run on these sources of electrical power; and energy efficient mass transportation throughout the country.
A few points: "There is no end in sight to the recent strong gains in oil prices, endangering world economic growth and food equilibrium. This prediction is supported by our own modeling, which indicates that prices are more likely to go up than down in the near future. Could this mess have been avoided, why did it come about and want can be done?
"The short answer is that the US Federal Reserve was in large part responsible for the oil price explosion and its volatility, while two successive US administrations have created the oil supply shortfall, again adversely affecting oil prices.
"But some analysts miss the wider picture on both the demand and supply side. The demand for oil and gas has been driven by a number of other factors. The Fed has injected an unprecedented level of liquidity into the market. Since 2001, by adopting an interest rate rule, the Fed has followed the most expansionary monetary policy in its history, setting interest rates at low levels and real interest rates at negative levels.
"A depreciating dollar and rising oil prices have gone hand-in-hand. Oil prices are quoted in dollars; a falling dollar results in an increasing dollar price for oil. Given a falling dollar, oil producers and others with surplus dollars are reluctant to store their wealth in dollars but instead are diversifying into other currencies, largely the euro and the yen, again putting further pressure on the dollar and again driving up oil prices; or in some cases producers cut back output as they are reluctant to hold more dollars.
"But the real issue that seems to have escaped all these oil analysts is the overriding reason why additions to oil supplies (and the capacity to produce more oil) have been so small in recent years? This can be laid at the door of the White House; the George W Bush administration and its predecessors have caused the current supply shortage through their policy stance towards the Persian Gulf region and especially towards Iran and Iraq.
"The world community must face up to a number of stark facts. The global energy squeeze is not going to go away any time soon. It has been years in the making. Fed policy has had adverse effects on the demand side, resulting in escalating prices and volatility. US policy towards the Persian Gulf region has exacerbated current and long-term supply conditions."
A progressive US foreign policy in the Middle East is absolutely essential in helping to bring about realistic solutions to the problems in that region caused and/or made worse by the stupid, terrible Bush jingoistic policy of militarism, invasion and occupation, hatred, and constant neocon saber rattling.
However, It still remains imperative for the US to reduce its dependency on oil; manufacture maximum fuel efficient cars; put into high gear the development of solar, wind, and tide energy sources; autos that run on these sources of electrical power; and energy efficient mass transportation throughout the country.
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