What's Going On with Oil? Answer Hidden in the Global Monetary Crisis 25 comments
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If we look at the graph below of the USO (US Oil Fund), at first glance, it appears that the deflationists have been correct about their assumptions of a worldwide slowdown causing demand for oil to plummet.
However, if we recognize deflation for what it is, an appreciation of the currency, given the most recent 12% figures of U.S. monetary supply growth (as determined by www.shadowstats.com ), the conclusion of U.S. dollar heading for sustainable appreciation seems downright foolish. Thus if deflation has little or nothing to do with oil prices being so low at less than $35 a barrel right now, what is the real reason for the oil price collapse? Investigating the battle behind the scenes of this growing monetary crisis will yield the answers.
At the end of last year, Bloomberg reported that “Gulf Arab leaders approved an agreement to create a central bank and single currency for the region to boost trade and strengthen monetary policy. The accord must now be endorsed by the national governments of the Gulf Cooperation Council, the group said in a statement after its leaders met today in Muscat, Oman’s capital. Within the six-nation GCC, Oman has pulled out of the process.”
Throughout history, Central Banks have done nothing but create massive distortions in real estate markets and stock markets. It is a total myth that Central Banks contribute to the stability of economies. Just because the majority of people hold a certain belief does not make it a fact. The overwhelming majority of investors that put their money in Madoff’s investment fund and now Stanford’s investment fund believed at the time that these funds were legitimate. Their beliefs did not make it so. Perception is only king until reality surfaces and crushes an erroneous perception.
Likewise, today, the overwhelming majority of people believe that Central Banks play a key role in ensuring economic stability and in contributing to a sound monetary system. Such a belief, even if it is still held by the majority of people today, is the furthest thing from the truth, and when the monetary crisis deepens in 2009 and 2010, this myth will crumble as did Madoff and Stanford.
The majority of Central Bank policies enact more harm than good the majority of time, but here is why the development of a singular Persian Gulf Central Bank is so important. For the past couple of years, the Persian Gulf nations have publicly declared their loyalty to the U.S. dollar, with key government figures even stating that no finance minister should ever make any public declarations of a loss of faith and confidence in the U.S. dollar due to the grave negative ramifications that such comments could possibly trigger. However, their announcement to form a regional currency signals a significant change in their public stance even if their private stance has been drastically different for some time now.
The Persian Gulf nations have now publicly made it known that they collectively wish “to stop pegging their currencies to the dollar and implement independent monetary policy.” All of the GCC (Gulf Cooperation Council) states except Kuwait still currently peg their currencies to the dollar and still let the U.S. Federal Reserve lead their interest rate policies. However, this is set to change.
The Gulf Nations plan to form a Monetary Council by December 12, 2009, and then a Gulf Central Bank that would include Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman. Their goal is to form a unified regional currency by 2010. Last year, five of these six countries reported inflationary rates higher than 10%. Besides the fact that these inflation rates seem to indicate that the GCC states calculate an inflation rate that is much more accurate than the Alice in Wonderland fantasy inflation rates the U.S. Government continually publishes, these rates more importantly indicate how significantly their economies are affected by their maintenance of a peg to the U.S. dollar.
Though there is much skepticism on whether the Gulf Nations can indeed accomplish a Central Bank by 2010, I 100% guarantee you that their desire to form a unified regional Gulf currency with the prime purpose of enabling them to “stop pegging their currencies to the dollar” fully and immediately garnered the attention of the U.S. Federal Reserve, the U.S. Treasury and the U.S. government.
Such decisions can never be made in a vacuum and they can only be made with enormous political consequences. Such is the nature of the political game. Qatari Prime Minister Sheikh Hamad Bin Jassim Al Thani said that the emirate is “studying all options” in relation to the dollar-peg. “As a small country we cannot float our currency… it has to be tied,” he said. But the question is this, “Tied to what?” If they don’t want to be tied to the U.S. dollar, the Euro, the Pound Sterling and the Yen, the other three major world currencies certainly offer no more attractive options as pegs.
A logical alternative then would be to peg their regional currency to gold. If this alternative is being considered, certainly the Gulf Nations could have quietly been converting their massive holdings of hundreds of billions of petrodollars held in their Sovereign Wealth Funds to hard assets such as gold. The nature of holdings in Sovereign Wealth Funds are not publicly reported, and for this reason, GCC states tend to hold the bulk of their country’s surpluses in Sovereign Wealth Funds and not on the balance sheets of their Central Banks.
If this is indeed happening, what would be the most likely U.S. retaliation for considering such a scheme? To collapse oil prices, as these nations' surpluses and economic well being depend upon their oil profits. Though these links will never be made in stories reported in the mainstream media, I guarantee you that there is a direct link between the monetary directives of Gulf Nations and the price of crude oil in the Nymex futures markets that determine the price of crude oil to a much higher degree than anything that has to do with the level of oil inventories and the level of global demand.
For two years now, the origins of this economic crisis have been reported incorrectly. Though certainly big banking institutions and Wall Street firms acted fraudulently and unethically for many years, they were only enablers of an unsound monetary system. For almost three years now, I warned of almost every major downturn in global stock markets on my blog due to my understanding of this as a monetary crisis. In three months, when the next wave of mortgage resets afflicts not only the subprime sector, but Alt-A and prime mortgages in the U.S. and housing problems resurface, a new “housing crisis” will be reported. Understanding all of these extreme price movements in real estate and commodity markets, however, can be accomplished by first studying and understanding the deepening monetary crisis.
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This article has 25 comments:
I'd probably feel better if I thought the US government could, by intent, engineer a major drop in oil prices as Mr Kim describes. Given the actions of the US government over the past 18 months, which now spans two very different administrations, find that quite unlikely. If Mr Kim had said that Greenspan did it, I might believe it. If he'd said that Paul Volker did it, I might believe. The 'government'? Not likely
The more people questioned the supply/demand explanation, the louder and more often its supporters shouted. That alone should increase our skepticism.
The sad truth is that our government has been manipulating all markets, not just the oil market.
They have been actively manipulating:
- foreign currencies (especially the Russian Ruple),
- the gold and silver markets (price suppression, to support the paper fiat dollar),
- global stock markets (the Polish government is suing JP Morgan for manipulation of their stock market)
- The US stock and bond markets (to try to prevent the inevitable!).
Bernanke admitted last month that he was going to "intervene" in buying the US long bond, in order to support low interest rates! When governments manipulate their own markets, it undermines the confidence and trust of knowledgeable investors.
The end result should be rather obvious.
Tell us more about how this works. I tend to think you might be oversimplify things to your own ends
The real actors are none other than the US Congress which has lead the way to financial ruin, and acted as the enabler of most financial wrong doing.
On Feb 20 09:11 AM yank wrote:
> Mr. Kim is 100% correct. The collapse in oil prices was "engineered"'
> by the Govt to send a message to the Gulf States. Don't mess with
> the US dollar. Unfortunately, the Gulf States are sick of the USD.
> And having witnessed a 94% decline in its value since the creation
> of the Fed Reserve doesn't help matters either. The "demand destruction"
> regarding oil is a complete myth. I live in the Miami-Ft. Lauderdfale
> area and have not seen one bit of a decline in automobile traffic.
> NADA. It is so easy for the Govt to manipulate data. When we see
> inflation data completely misrepresented and reported eorroneously
> why would anyone with half a brain believe bogus Govt oil inventory
> data. It's all "rigged" to support a corrupt, failed currency. Namely,
> the USD. Bravo Mr. Kim for exposing the raw truth behind the drop
> in oil prices.
On Feb 20 10:36 AM a. palmer jr. wrote:
> I certainly wish automakers would quit dragging their feet and speed
> up production of all-electric automobiles and trucks...I'm tired
> of hearing about the middle east. We here in the US get most of
> our oil from Canada anyway. I'd prefer Hybrids and EVs and get ALL
> our oil from the US and Canada and let the middle east keep their
> oil!
In my soul, for instance ,and for decades, I knew that a large number of powerful and rich Americans were hiding and shielding wealth in Swiss bank accounts, but I certainly could not prove it. Now the facts (some) are starting to roll out on this subject, and more proof is forthcoming.
I also cannot prove that there is considerable collusion at certain times at least, between the American Oil Cartel (esp. when it has an Admin in power in Wash.), and OPEC, principally Saudi Arabia, but I am nonetheless convinced that it happens.
This suggests to me that many other forms of international intrique, often , on a grand scale, are also taking place, and that is why I have an open mind on the authors claims, but am unable to reject or accept them at this time - still it's something to watch and consider.
On Feb 20 05:57 PM whidbey wrote:
> The last time we were short of oil and the auto makers responded,
> they were savaged by consumers who refused to buy. It is still not
> clear how the market would treat fuel efficient autos.
============
Absolutely right on. The US is not a small car society. Americans do things and americans carry things. It's pretty hard to transport a TV in a small compact let alone that dresser or trunk for the kids at college.Try carrying some 2x4s in a compact. You say you want an all electric vehicle? How far do you think that vehicle will go in a snow storm? These ideas may work in Europe where much of society is centrally located but the US is spread out and it is no accident that this happened. The US built an amazing highway system after world war 2 in order to create jobs and this enabled people to spread out. This solved that problem then but has created another problem now. The solution is new engine technology and getting the most out of a gallon of gas or liquid fuel. There are technologies for LNG that work and technologies for producing oil from algai. There are other alternatives for producing bio fuel than burning our food supply as well.
> they were savaged by consumers who refused to buy. >>
>> "Absolutely right on. The US is not a small car society" >>
No, America is a GOOD car society. Why do you think Camry is the # 1 seller ? Quality, efficiency and reliability.
Detroit gave us Pintos, Vegas and Gremlins, all maginally better than Yugos. They were crap. Did you ever know anyone who bought a second one ?
If the Big 3 spent half as much on high efficiency, reliablility and quality that they do on horsepower, they'd have plenty of buyers.
There is a bottomless pit in Detroit where millions go every year to "improve" V 8 power and find new ways to add cup holders. They make motorized living rooms and motorized family rooms, not transportation devices.
>> "Americans do things and americans carry things" >> In rush hour, 90+% of the cars carry one overweight person talking on the cell phone or eating a fast food meal. Admit it - we are just plain wasteful. More and bigger are better, right ?
The Europeans did it right, put a big tax on fuel and forced people to become fuel efficient. As a result, thier vehicles are just as comfortable, more nimble and way more efficient.
You propose an intriguing theory to explain why petroleum prices fall during an economic meltdown. As a scientist, my interest was piqued by your link to monetary policy as the key parameter, and phony (or fraudulent) statistics on all related issues released by the government and markets. Your ideas do seem to beg the question without reliable data, but I must admit that the arguments cannot be refuted.
The integrity of Central Banks has been called into question. An investigation is warranted. Hedge funds have become a source of liquidity despite a total lack of transparency and regulation. Derivatives with a combined value of ten times the total worth of the planet have been issued and are traded on collapsing markets. 100 million barrels a day of oil, worth less four billion dollars daily, are consumed that somehow impact an economy that trades in trillions of USD per day.
There seem to be other factors that have a first order impact on the problem. While your article sheds some light, there is still much darkness that needs to become illuminated.
My God man just read the above post by rjsgso. Do the math. A 5% decline in demand does NOT expalin a 75% drop in the underlying commodity. Wake up!!!!!!!!!
Yank
On Feb 20 05:55 PM whidbey wrote:
> This post is just nonsense. The US government is capable of much
> but they can not destroy demand for oil which is what has happened
> due to economic problems. Surely you can not deny the economic slow
> down.
So, maybe this was manipulation by "them" or maybe it's coincidence. Maybe the U.S. was punishing the Gulf states and Russia by collapsing the oil price or maybe commodities generally were overbought at the end of the bubble. It's typical bubble behaviour.
Of course, what we really need to know is where oil is heading.
I always disagree with the government.
Therefore I am always right.
Anybody remember Logic 201?