Manny Otero

Is Oil Overpriced at $105/Barrel?

Thank you for this interesting and informative article regarding your perspective of the relationship between the increasing price of crude, and the subsequent decline of the dollar's value. While your analysis is offers on perspective, it fails to consider the inherent globalization of the world economy. That is to say, it is incorrect to consider the US economy isolated from the major world economies, which I believe we could classify as Europe, Brazil, India, China, Japan, and Russia (I would not lump them in with Europe, although socio-politically and geographically, they are). Should the US economy fall into continued recession or depression, world economies would also significant suffer, causing depreciation in their currencies. This creates a complex regulatory network, where economics forces will continue to create balance.

In short, the rising increase of oil, and the depreciation of the dollar, while causing short-term economic recession in the US, will serve as market forces to cool world economies. It has been demonstrated many times in history, that when this economic condition arises, it is those countries that increase productivity, primarily through innovation, that will pervail. I have no doubt that we continue to lead the world in innovation, and no country in history has had the ramp in productivity, normalized for GDP, that we have had.

So, while you can paint a fairly dark picture, and ultimately history my judge you to be correct, I respectfully disagree. Market forces, more than ever given our gloabalization are in effect, and will normalize the turbulence we're now experiencing. In practical terms, what I am saying, is that while oil surpasses $106/barrel, and the dollars hits all time lows against the Euro, those countries that use Euros will start to see their productivity decline, because they're so inherently tied to the US, and other markets. This decline will cause a rebound in the US dollar.

Believe in free market capitalism - it has worked, and continues to work.

-Manny Otero