I’ve been watching the oil market for the last several weeks with great unease. Over the last few days it seemed to be stalling out at $115.oo/barrel. To my delight today it fell below $100.00/barrel!
Later I found out that oil fell because of all the bad economic news. Consumer confidence and spending is down, unemployment claims are up. So, all of a sudden the traders felt like they didn’t want to hang on to their oil futures any more.
Well, I think there is more to the story here. No one in their right mind could believe that economic activity was supporting oil at current levels. All this falderol about the emerging economies and heightened demand pushing the market was just a smoke screen. The true problem is our dollar and it’s weakness. Investors were fleeing our dollar and putting the money into commodities. But what seems safe one day looks risky on another.
Commodities maintain their value only under strong demand. But worldwide there is still a slump. When the largest economy (STILL THE U.S.) reports bad economic indicators all the emerging markets in the world don’t make up for it.
What would help the most is for our government to return to sane fiscal policy. Such a policy would allay fears of inflation. The dollar would once again become a reliable store of value. Investors wouldn’t frantically seek to dump dollars for whatever else looked better creating the kinds of bubbles in commodities we’ve seen.
There really is no better solution than for the federal government to drastically rein in spending, reduce the deficit and balance it’s budget. The economic health of THE WORLD depends on it.
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