Brian A. Davis

The Triple Play: Oil Addicts, The Credit Crunch and Deflation

Dear Readers,

Yes, the first true fear is inflation...that will happen when prices go up and the buying power of the dollar does down. However, the true long-term concern would be deflation. Should wage increases slow for the other 99.5% of the population, this could be one of the catalysts that bring on a deflationary period as seen in the Great Depression. Here is a short excerpt from Wikipedia:

"In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs."

Respectfully,
Brian A. Davis

The Triple Play: Oil Addicts, The Credit Crunch and Deflation

Dear Readers,

Thank you for your excellent posts. I find a high degreee of irony to the degree which Big Oil...and to a lesser extent small oil is taking a verbal beating from the powers that be.

There have been a number of theories behind oil price. Three make the most sense:
1. The purchasing power of the U.S. Dollar (oil is priced in dollars) has lost its clout...George Soros would agree!
2. The emergence of China and India as consumers has caused an
exceedingly high demand. This is coupled with a less than Pro-American stance from countires in OPEC.
3. Last, is the manipulation of prices. While there is a slight degree of manipulation (because oil is a commodity), Congress may try to hang their hats on this issue...However, it is nothing more than an act of grandstanding...and taking the public's eye off problem #1 and problem #2.

Interestingly enough, John D. Rockefeller Sr. (Standard Oil) took a beating for producing the best and cheapest oil in the country. As a matter of fact, he was viewed as the original tycoon...Teddy Roosevelt vilifed Standard Oil and became the trust buster.

Interestingly enough, once the Trust was broken oil prices actually increased...as opposed to decreased. And John D. was seen as a bad guy...go figure. Leave it to politicans and media to form public opinion.

Domestic drillers should be the big winners here!

Respectfully,

Brian A. Davis