$262 barrel of oil?

[Headless Thompson Gunner]

Yawn...

They've been publishing apacolyptic predictions about oil shortages for decades and decades. Yet oil remains one of the cheapest and most convenient forms of energy available today. I can't bring myself to beleive these current doomsday predictions are any more acurate than the ones from years past.

And, even if they are true, so what? I'm resourceful, productive, and adaptable. If gas gets more expensive, I'll work harder, earn the extra money needed to buy it. Or I'll figure out how to use less. I'll adapt. Other people may let these changing circumstances make them suffer, but I won't.

I refuse to let CNN and George Soros intimidate me.

 

[R.H. Lee]

I agree with Malone Firearms are not a good investment/inflation hedge. They're hardly liquid and are subject to all kinds of regulation vagaries that might prohibit/restrict/outlaw their transfer. I Bonds are the only 'inflation hedge' I can think of off the top of my head. As safe as cash and only slightly less liquid and state tax free.

Ammo is another thing and could be good under the radar barter material.

 

[farscott]

... to have a little nest egg in the form of something other than cash-type assets.

I agree with this statement, but my investment is going to be real estate in a very sparsely populated area. I am wealthy in firearms and ammo, but I am land poor. I intend to rectify that issue in the very near future.

 

[bearmgc]

How can I not take a look at changing my voting habits, when in the middle of this oil shortage, the 2 top American oil Corporations made profits of $65 BILLION dollars in the last 3 MONTHS total? They certainly found a way to offset the cost of doing business. Alternate energy fuel developement must become serious, but considering the lobbying influence of these 2 companies alone, I don't see much hope for that in the near future. Time to hunker down and start saving assets for the next 10 yrs.

 

[Malone LaVeigh]

I agree with this statement, but my investment is going to be real estate in a very sparsely populated area. I am wealthy in firearms and ammo, but I am land poor. I intend to rectify that issue in the very near future.

Well, I'm not going to start giving financial advice until I figure it all out myself, but I would think that the best thing to do is to wait until the bubble deflates a bit. In some places they're talking about 25% overvaluation. Now, I bought recently, but that was after cashing out of California property and purchasing high ground that didn't flood in Katrina, with rental units and enough extra to subdivide. But I'm planning on paying off the debt ASAP and living off the income. Our sit here on the Coast is unique right now.

 

[antarti]

Supply will rise to meet demand and prices will adjust accordingly.

Exactly, but what happens when commodity traders start to take deliveries en masse? The deliveries can't be met, so (and here's the rub) prices spike to the point where demand must be erased faster than supply is created to meet deliveries.

Commodity booms (demand over supply in hard assets) and stock market booms (demand over supply in stocks) are not analogous. In the same way, paper wealth dissapearance is theoretically analogous to a food shortage, but hunger isn't theoretical.

I agree with Malone Firearms are not a good investment/inflation hedge.

LMAO! I threw that out there to satisy the posted that complained there were no firearms references, no other reason; I should have put a wink there.

Edited to add:

They certainly found a way to offset the cost of doing business.

Yup, they passed that cost on to the consumer. When you have something that people need, you have the luxury of doing that without impacting sales to the same extent that a chocolatier or toymaker would.

 

[Lobotomy Boy]

my investment is going to be real estate in a very sparsely populated area.

Real estate should, in theory, be a good investment, but the value of real estate depends on a stable nation-state to enforce the private ownership of property. If the rule of law were to dissolve, so to would property ownership. Just ask anyone who used to own property in a place like Somalia.

Hopefully things will never devolve to that point in the U.S., but think of the consequences of losing a major war in the Middle East. Imagine going to war against Iran and achieving the same results as every other empire that started a land war in Asia. Imagine the chaos that would ensue in the post-war period.

At that point guns would have tremendous intrinsic value because the group that had the most guns would control the most land.

 

[Headless Thompson Gunner]

Real estate should, in theory, be a good investment, but the value of real estate depends on a stable nation-state to enforce the private ownership of property. If the rule of law were to dissolve, so to would property ownership. Just ask anyone who used to own property in a place like Somalia.

Hopefully things will never devolve to that point in the U.S., but think of the consequences of losing a major war in the Middle East. Imagine going to war against Iran and achieving the same results as every other empire that started a land war in Asia. Imagine the chaos that would ensue in the post-war period.

At that point guns would have tremendous intrinsic value because the group that had the most guns would control the most land.

All older nations have lost minor wars on foreign continents without major impact to the citizens living in the home territory. It isn't nearly as tumultous as you make it out to be. The fact that the US hasn't lost such a war (yet) is merely indicative of the fact that the US is a youthful 200 years old.

Society isn't going to come crumbling down at our feet any time soon. The worst we can realistically expect would be another great depression, and even that's a long shot. Gasoline isn't going to magically disappear overnight. If it does disappear, it will do so gradually over a period of years and decades. Society will adapt and move on.

Humanity has faced far worse calamities over the course of history. Plague, world wars, genocide, famine, civil wars, dark ages... Running out of oil (which, again, is extremely unlikely) will amount to a comparatively minor event.

The sky is NOT falling, despite what George Soros and the libs want you to believe.

 

[middy]

You know, Foxy Loxy ate Chicken Little...

Just something to think about.

 

[Lobotomy Boy]

All older nations have lost minor wars on foreign continents without major impact to the citizens living in the home territory. It isn't nearly as tumultous as you make it out to be. The fact that the US hasn't lost such a war (yet) is merely indicative of the fact that the US is a youthful 200 years old.

Society isn't going to come crumbling down at our feet any time soon. The worst we can realistically expect would be another great depression, and even that's a long shot. Gasoline isn't going to magically disappear overnight. If it does disappear, it will do so gradually over a period of years and decades. Society will adapt and move on.

Humanity has faced far worse calamities over the course of history. Plague, world wars, genocide, famine, civil wars, dark ages... Running out of oil (which, again, is extremely unlikely) will amount to a comparatively minor event.

The sky is NOT falling, despite what George Soros and the libs want you to believe.

The closest comparison to us losing a war against Iran is the Soviet Union's defeat in Afghanistan, and that brought about the demise of the Soviet empire. I see a very similar reaction should we lose in Iran. If, as many of us believe, this war will be fought to preserve the hegemony of the petrodollar, and we lose the war, we'll lose the very foundation propping up our currency and experience a rapid and extreme devaluation of the dollar. This would bring about a situation very much like the one in Germany between world wars.

Americans don't seem too well equipped to deal with such adversity in modern times. They can barely tolerate rush-hour traffic and are practically ready to kill someone if they have to wait too long in line for their morning non-fat latte. I can't imagine they would deal with a severe economic depression much better.

 

[middy]

The closest comparison to us losing a war against Iran is the Soviet Union's defeat in Afghanistan, and that brought about the demise of the Soviet empire.

Did someone tell you that or did you just make it up?

 

[middy]

Americans don't seem too well equipped to deal with such adversity in modern times. They can barely tolerate rush-hour traffic and are practically ready to kill someone if they have to wait too long in line for their morning non-fat latte. I can't imagine they would deal with a severe economic depression much better.

I'm wondering where you live LB... because this is not the America I know. Then again, I don't get out of the red states much.

 

[R.H. Lee]

The closest comparison to us losing a war against Iran is the Soviet Union's defeat in Afghanistan, and that brought about the demise of the Soviet empire

ROFLMAO!

 

[middy]

If, as many of us believe, this war will be fought to preserve the hegemony of the petrodollar, and we lose the war, we'll lose the very foundation propping up our currency and experience a rapid and extreme devaluation of the dollar. This would bring about a situation very much like the one in Germany between world wars.

I've been getting a number of emails from people suggesting to me that this impending war is all about money - specifically, to ensure that the dollar, and not the euro, remains the world's #1 currency. The idea is that the US economy will be in danger if OPEC members start demanding payment in euros rather than dollars.

With respect to my correspondents, this isn't a plausible argument. It's politically implausible - who, exactly, in this administration is supposed to be thinking about the role of the dollar as a key currency? The same people who invited the author of The Bible Code to brief the Pentagon? And anyway, the economics are wrong.

Remember the three roles of money: medium of exchange, unit of account, store of value. The dollar plays all three roles to some extent on world markets. It's a medium of exchange: people converting Brazilian reais to Malaysian ringgits (or rather banks making trades in the FX market) normally do so through two transactions against the dollar. It's a unit of account: although most world prices are set in other currencies, the share of prices in both financial and goods markets specified in dollars is larger than you would expect from the raw economic weight of the United States. And the dollar is a store of value: the Fed estimates that about 60 percent of US currency - that is, actual pieces of green paper - is held outside the US.

But why does all this matter? Does it give the US a special advantage in the world? Well, yes - but not nearly as big an advantage as people imagine. And a change in how OPEC gets paid would make very little difference.

The US advantage comes to the extent - and only to the extent - that the international role of the dollar lets us borrow money more cheaply than we otherwise could. One component of that is clear: because foreigners hold a lot of dollar bills, which pay no interest, we in effect get a free loan of that much money.

Dollar-denominated bank accounts also provide a bit of an interest-free loan, because they are ultimately backed by deposits at the Federal Reserve. But most of the accounts held by foreigners have very fractional backing - they're typically eurodollar accounts, which are only partly backed by accounts in the US, which are in turn only partly backed by deposits.

It's also possible that even our interest-bearing debt commands a better price - i.e., a lower interest rate - because of the dollar's special role. But there doesn't seem to be any evidence of that, and it's not likely to be more than marginal. (Also, the US isn't the only country that can issue dollar-denominated bonds.)

So the main thing is cash overseas - $300-350 billion of bills, mostly in large denominations, hidden under beds, being transferred among criminals, etc.. At an interest rate of 4 percent - say that's a normal rate - this is a subsidy to the US of $12-14 billion per year. Small change, for a $10 trillion economy. It's not even a significant part of our current account deficit.

Moreover, would a change in OPEC settlements really affect this?

There's probably some link between the dollar's role as unit of account/medium of exchange and its role as store of value. But when we say that Saudi Arabia is paid in dollars, what we mean is that oil is paid for with a wire transfer from a London bank, with the sum denominated in dollars. It doesn't mean that green pieces of paper change hands, or even that there is a stash of green paper somewhere being held to back the transaction. What really matters for the cash held overseas is which currency people who don't trust their native currencies think is a good bet. Rumor has it that the Russian mafiya is switching to euros, since Europe is where ill-gotten Russian gains get banked or spent; if so, that's a much bigger deal for seignorage than pricing of Persian Gulf oil.

So this particular conspiracy theory is wrong. Sorry.

--Paul Krugman, economist for the NYTimes, and hardly a supporter of the Bush administration or the war.

 

[Lobotomy Boy]

It's politically implausible - who, exactly, in this administration is supposed to be thinking about the role of the dollar as a key currency? The same people who invited the author of The Bible Code to brief the Pentagon?

I'm already suspicious--typical tactic in today's poisonous political atmosphere. Respond with a personal attack rather than rational thought.

And the dollar is a store of value: the Fed estimates that about 60 percent of US currency - that is, actual pieces of green paper - is held outside the US.

And why do foriegn countries store most of the existing U.S. currency? The answer:

...oil is paid for with a wire transfer from a London bank, with the sum denominated in dollars.

Ding-ding-ding! We have an answer: OPEC is paid in U.S. dollars for oil; hence, foriegn countries need to stockpile dollars or they don't have the oil they need to fuel their economies.

It doesn't mean that green pieces of paper change hands, or even that there is a stash of green paper somewhere being held to back the transaction.

No, what it means is that foriegn countries need to continue to invest in U.S. dollars in order to buy oil, thereby propping up U.S. currency rates. And that means a precipitous decline in the U.S. dollar should oil begun to be sold in Euros.

Here is another typical tactic to baffle the easily befuddled:

Rumor has it that the Russian mafiya is switching to euros, since Europe is where ill-gotten Russian gains get banked or spent; if so, that's a much bigger deal for seignorage than pricing of Persian Gulf oil.

End your smokescreen diatribe with a dramatic, smart-sounding, yet totally irrelevent sound bite.

 

[Waitone]

Paul Krugman--now there is a specimen of clear thinking.

 

[xd9fan]

exxon' s 10.7 Billion quarter profits is only 10% of their net sales. Thats good but not worth the U.S. socialist Govt to tax.

My Fidelity select energy fund is kicking a$$. .....so is my Gold fund


If oil gets to be over $200 a barrel....look in the mirror......voting for politicians what talk and talk about energy for decades and decades. We have become more and more dependent (boxed in to oil only). all the while demand skyrocks........and they wonder why the price of oil is high.......

Ford and GM both broke....hmmmm

 

[gc70]

Gee, LB, the economics and mechanics of FX transactions aren't that arcane.

Over the last century, the world stocked up on dollars because other countries wanted to sell things to the US and we pay for things in dollars. The US has been a powerhouse economy, so we bought lots of stuff from other countries and they got lots of dollars.

On an individual basis, people around the world hold a lot of greenbacks (actual US paper currency) because the dollar has been one of the most stable currencies around. By stable, I don't mean relative value, but stable in the sense that a dollar tucked away in 1911 can still be spent as a dollar - US currency hasn't been voided or replaced as have many other countries' currencies.

Nevertheless, the amount of dollars outstanding as greenbacks is miniscule compared to the dollars represented by US securities or dollar-denominated bank balances.

As far as countries holding lots of dollars just because oil is typically traded on a dollar basis... well, that is simply not true. Anyone who wants to buy dollar-denominated oil only has to take any freely-traded currency to a foreign exchange dealer and exchange it for dollars. On the scale at which oil deals are done, the bid-ask spread lost on the FX transaction is minimal.

Oh, and the dollar is the most liquid (easily converted) of all currencies because there is so much of it outstanding. Heck, part of the rationale for the EU and the creation of the Euro was for European countries to band together as an economic unit that could compete with the US and to create a single European currency that would have the bulk and consistency to compete with the dollar.

 

[Headless Thompson Gunner]

gc70 has the right answer. Foreign countries have lots of American dollars because that's what we Americans buy all of our worthless junk (I mean "consumer goods") with. There's a constant stream of American dollars out of our country, and a matching stream of Chinese (Taiwanese, Japanese, Mexican etc...) trinkets into our country. After a while all those dollars begin to accumulate in foreign lands, just like all those foreign trinkets accumulate in our landfills.

As for losing wars, we pretty much lost in Vietnam, didn't we? A few million Vietnamese deaths ensued, but how much did Americans suffer from that defeat? Why would a loss in Iran or Iraq be any more cataclysmic (for us) than our loss in Vietnam? Heck, half of America lost the Civil War, and we're all still here. I'm not saying military defeat is pleasant, merely that it isn't the end of the world.

The end of oil is the same way. It will probably prove unpleasant (in the short term). But eventually the scientists and engineers and entrepreneurs will find a viable alternative. We'll all replace our automibiles, just as folks replaced their horse-drawn carriages nearly a century ago. It's happened before, and it'll happen again.

Life goes on.

 

[middy]

OK, I give up. Indulge in your conspiracy fantasies.

Here, let me contribute.

IT'S ALL ABOUT THE OOOIIIIILLLLLL!!!!

 

[antarti]

Remember the three roles of money: medium of exchange, unit of account, store of value. The dollar plays all three roles to some extent on world markets. It's a medium of exchange: people converting Brazilian reais to Malaysian ringgits (or rather banks making trades in the FX market) normally do so through two transactions against the dollar.

Really? I write software that does this (among other globalization and security tasks) for lots of financial institutions back-end systems. Software that's been audited by VISA, AMEX, and (for the foreign/Eurozone crowd) BASDA rules specifically for multi-currency. I've never seen a requirement that currency triangulation must only be performed through the USD.... never. If that's all the rate supplier provides, then it will happen, but that's not always the case (not even close, but there are a very few that have done this).

It's a unit of account: although most world prices are set in other currencies, the share of prices in both financial and goods markets specified in dollars is larger than you would expect from the raw economic weight of the United States.

Agree that it is a "unit of measure", although our own Bureau of Standards would never certify it as such in its current state.

And the dollar is a store of value: the Fed estimates that about 60 percent of US currency - that is, actual pieces of green paper - is held outside the US.

The "dollar bill" or FRN is not a store of anything. Its "value" is only that the US Taxpayer will continue to be taxed to make the "good faith and credit" possible.