Is OPEC the New Fed?

At least for now, our civilization and most of the widgets produced require oil’s bounty in one way or another. Our productivity is intimately tied to oil’s price and ultimately its availability. Yet, we continue to pretend that oil is just another economic variable, never to approach the sacred cost of, or supply of money. Isn’t it obvious that oil is becoming the global currency, far more important than anyone’s fiat money?

The recent Ben Bernanke bubble bail out is the equivalent of a monetary steroid injection, given to a global fiat monster growing out of control. The idea that recessions are an anachronism and that Central Banks can inflate their way to perpetual prosperity has driven our currency to 40-year lows. Our once-fiscally-responsible Central Bank is losing decades of organic growth with successive steroid (liquidity) binges.

The monster only seems more grotesque now as he’s painted against the shadow of the world’s available commodities. Oil is less reflecting supply/demand than what little value paper money really has. Commodities are forcing the tide out and currencies are getting marked-to-market. Meanwhile, OPEC holds most of the reserves for and controls the flow of oil. If oil is the world’s currency, doesn’t that make them the world’s Central Banker?

With industrializing nations firing at ever higher efficiencies, it will be the availability and price of oil, not fiat, that will define their ability to prosper. OPEC, as an organization, is now in a position to act as the world’s Central Bankers and arbitrate growth through oil (notwithstanding the geo-political ramifications). Oil as a currency even makes sense and gets us back to money’s basis – a note that was worth something. Exchanging contracts of an ever so intrinsic and deliciously undillutable commodity like oil may, however, guarantee that it will someday be successfully diluted.

Comments

[A]

What a ridiculous notion. OPEC is irrelevant today. They couldn't put out a single extra drop of oil if their life depended on it. Anyone who thinks they (or the rest of the world for that matter) are running at any level other than flat out is deluding themselves. Spare capacity, my ass.

[droskoph]

Thank you for reading my article. Truly OPEC is at its capacity to produce - perhaps like the Fed floating cash and dropping rates. The question is what happens if they drop production? What would make more of a difference, oil at $160 or money at 10%?

[A]

Get serious. Assuming for a minute that your ridiculous notion of de-facto central banker to the world is one that they actually want to pursue (which will never happen), they actually have to have the ability to increase or decrease production according to conditions, just as the Fed can increase or decrease the money supply at will. They've been crying about oil prices being too high since it broke $40 and haven't been able to do a damn thing about it. So that ends your theory right there. Oil at $160 is just shooting themselves in the foot as all of the world's resources will be hell bent on developing alternative energy sources. And besides, no single country has the will or the fortitude to reduce production any more than an addict would refuse drugs if you thrust more and more upon them. The only reduction in production will come about by accident due to natural depletion and forces of nature.

But really, I don't even know why I'm even wasting my time replying. Good luck to you. If this is the sort of thing that you think about, then you'll need all the luck you can get.

[Tom B]

"The recent Ben Bernanke bubble bail out is the equivalent of a monetary steroid injection,"

I'm feeling "roid rage". Ben bailed out home builders-- people lower in my regard than satanists-- at the expense of EVERYBODY ELSE. My greenbacks can't even buy a Canadian buck on the cheap anymore.

Emigration-- should have done it when I still had assets!