Sunday, August 14, 2011

Past"Expert"Predictions - Oil and Dollar...LIARS and CROOKS

With the S&P downgrade of the US debt rating I like to recall some past predictions by the experts in industry, government and media. No, I'm not going to talk about the actual downgrading, although Secretary of Treasury, Geithner said it would never happen, repeatedly. No, I'm going to talk about the most important product that is traded around the world - OIL.
CPI / Oil
 It is ironic that this commodity is needed by everyone in every country, and it is the biggest expense by far for importing countries and it generates the most revenue by the exporting countries. With that last statement as the basis for global transactions our government releases a monthly report called the Consumer Price Index and they have the nerve not to count oil or food(second most traded commodity)as essential to inflation. They say oil does not mean anything in today's economy and they use a "core inflation" gauge to measure inflation's impact to consumers and our economy. Get real!
With that info let us recall some past predictions about oil with this most important concept, oil is traded in dollars because our dollar is the world's reserve currency. If, for any reason or event that the dollar is no longer central to oil trading, then the dollar will no longer be the world's reserve currency and because of our deficit picture, we would sink to third world status. By the way there are twenty nations in the world with a better living standards at this moment because of our military waste, the lie of free trade and excessive printing of dollars by the Fed. (Me - END THE FED!)
Paul Wolkowitz, Deputy Secretary of Defense said in 2003,"...Iraq oil revenues would pay all the costs of reconstructing the country." Larry Kudlow of CNBC said,"terrorism will be reduced and the temporary oil spike(which if you don't recall had gasoline rise to $1.72 per gallon) will be reduced." How about President Bush when questioned about the oil impact to our deficit? He said,"his tax plan will cut the deficit in half by the end of his second term and oil would be more affordable." His VP, Cheney added,"deficits don't matter!" Experts!? ...and I can't get my book published.
Speaking of oil let us go directly to its leaders.
When speaking of oil, it starts with the controversy by Hubbert with his paper way back in 1956 when he stated that the world is running out of fossil fuel. He said that the US oil production would peak in the 1970s and world production would peak around the millennium. Well, years after his prediction it was shown to be flawed as world production continues to rise, however environmentalist love to use the theory to fight for alternative energy sources which I will not tackle in this article. I will provide two points in his defense. One, technology like horizontal drilling and seabed advancements have opened new oil fields producing more oil and they were not known during his time. His second part of his theory that states that oil in surrounding areas where oil is discovered will be less than the first find has so far proven correct and this all dates to the 1950s. Wow! This guy was good.
With that background here is some facts and more predictions about the price of oil. Our military is directly responsible for using 20% of our oil imports which causes the price to rise. The Cambridge Energy Research Association(CERA)a  leader in oil analyst likes the idea of peak oil except their interpretation says there is enough oil and it will be $40 a barrel in 2015. How about David Simon? Don't know him? He was a top exec with BP and he said oil would be at $20(because there is plenty)around the millennium. How about the US agency, the Energy Information Agency(EIA)? They said that the world produced more than eight million barrels of excess oil and prices would decline in 2002. Today, prices have tripled since that quote. Even the CIA does oil research and they told the president in 1977 that Russia would become an OIL IMPORTER. Can you believe these idiots. Russia may have the most oil reserves in the world!...and I can't get my book published.
Oil Prices
Oil has cycles like everything else, however contrary to the media and government the oil majors do a great job in finding oil and keeping supply and prices steady. If you look at a chart in 1986 in March the piece for a barrel of oil was $10.40 a barrel which translates to a buck a gallon. Yes, Maryann Faithful, those were the days. Continuing with this chart - oil prices remain steady to 12/10/1998 with oil at $10.73 per barrel. The only spike during the period was the Iraq War when oil spiked to $40.40 per barrel. Conclusion: No wars, no conflicts, no government interference and we will be able to fill up the car and enjoy a Sunday drive. Let me add just one other fact. Oil companies are not created equal. Exxon, Chevron and Shell put safety first with engineering while BP does not. We need to help our oil companies because in reality they know the oil business better than anyone, however the sovereign oil companies control over 85% of the world's reserves and with their governments helping them we need to level the playing field.
LIARS and CROOKS: In 1989 after the fiasco of the savings bank industry the elder George Bush created the Office of Thrift Supervision(OTS)replacing the Federal Home Loan Bank Board. Bush said."we will never have this problem again." It was reported that the workers left the building for lunch and they watched the big announcement on TV. After lunch they went back to work and they noticed a man painting the OTS sign on the door. This is the same agency that saw the failed companies: AIG, Washington Mutual and IndyMac.
The reason that I mentioned this is because the new Super Committee appointed to look into the deficits. I predict that they won't do anything and they go with the automatic $1.2 trillion in cuts. Why? Because no one has enough guts to stand for something whether I agree or not is not the point, but it is easier to say I tried but it was the other party, not me.