Is OPEC the New Fed?

by: David Roskoph

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.