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10 Notes on the Crude Oil Fixation

This country needs to sell higher quality, & lower cost, goods & services - period. The requisite changes necessary for a competitive country are not being discussed.

10 Notes on the Crude Oil Fixation

I believe that I read somewhere that the production of the world's major oil fields are in decline. Even so, a "loose" monetary policy fuels speculation as inflation rises. It's a tell-tale sign.

As for the J-curve, I don't think it applies to the U.S., esp. since 85. If it did work then the 30% decline in the trade-weighted exchange value of the U.S. dollar since 2000 would have substantially narrowed the current account deficit.

Paul Craig Roberts tells the real story: "A quarter century ago US oil imports accounted for the US trade deficit. The concerns expressed over the years about "energy dependence" accustomed Americans to think of trade problems only in terms of oil. The desire to gain "energy independence" has led to such foolish policies as subsidies for ethanol, the main effect of which is to drive up food prices and further ravage the poor.

Today oil imports comprise a small part of the US trade deficit. During the decades when Americans were fixated on "the energy deficit," the US became three to four times more dependent on foreign made manufactures. America's trade deficit in manufactured goods, including advanced technology products, dwarfs the US energy deficit."

Will the World's Central Banks Successfully Fight Inflation?

Of course the World's Central Bankers can control the rate-of-change in monetary flows (MVt). The proof? Take Feb. 27th 2007. The DOW dropped 416 points. It was the 7th biggest one-day drop ever. The pundits claimed it was in response to:

"The selling started overseas when a key gauge of Chinese stocks slumped 8.8 percent in Shanghai Tuesday - the worst one-day selloff in a decade - on concerns that the government would interfere to cool the speculation that drove the market up nearly 130 percent last year."

Well, world market declines in this case - were home grown. The U.S. has the world's largest economy & any significant changes made by the FOMC are quickly transmitted through the international money markets (i.e., Euro-Dollar market).

Leading up to the crash (commodities, et al.), the Fed tightened (the trigger), but much quicker & much deeper than past seasonal mal-adjustments (the Fed follows a real-bills doctrine/mandate).

Those who don't understand money & central banking (e.g., Bernanke), pointed the finger the other way.

Oil Bulls' Biggest Nightmare: A Stronger Dollar

Oil is due to turn, if just not because of the seasonal mal-adjustments.
Depending upon the anticipation of the move, the range could be between the FOMC meeting - Apr. 29/30 & May 5th.

Oil Bulls' Biggest Nightmare: A Stronger Dollar

What goes for M2 also goes for M3: M2 erroneously includes MMFs in its definition (a sizable #). MMFs are the customer's of the commercial banks. They are financial intermediaries/transmi... Monetary savings are never transferred from the commercial banks to the intermediaries; rather are monetary savings always transferred through the intermediaries. Whether the public saves or dis-saves, chooses to hold their savings in the commercial banks or to transfer them to intermediary institutions will not, per se, alter the total assets or liabilities of the commercial banks; nor alter the forms of these assets or liabilities. Financial intermediaries (MMFs) lend existing money which has been saved, and all of these savings originate outside the intermediaries. The utilization of these loan-funds, or the activation of monetary savings held by these financial intermediaries, is captured thru the velocity of their deposits (bank debits/withdrawals), and not thru the volume of their demand deposits. I.e., from the standpoint of the economy, MMF deposits never leave the MCB system. And the growth of the MMFs is prima facie evidence that existing funds/savings have already been spent/invested, i.e., transferred/transmitte... by their owners/savers/creditor... to borrowers/debtors. I.e., this currently (but not for long) represents a double counting and will continue to be so, as long as these intermediary financial institutions don’t practice/conduct a transaction’s deposit business.

It is a succulent irony that professional economists, (those who confuse the supply of money with the supply of loan-funds), thus conclude that increases in the old monetary figure “M3” are inflationary. The conclusion is tantamount to saying, “don’t save money” as savings (which we don’t have enough of) adds to “M3” and therefore has an inflationary bias, when in fact, savings (a large portion of “M3”) is evidence of money that has already been spent/invested. Savings-investment accounts have been lumped into the Keynesian inspired concept of money (just as are MMF funds).

Where the Oil Rally Goes: Facts and Speculation

Break to the downside should be around May 5th.

Ben Bernanke's Tightrope Act

In 1980, Paul Volcker, Past chairman of the Board of Governors of the Federal Reserve System, appeared before the House Domestic Monetary Policy Subcommittee. In response to a question as to why the Fed had supplied an excessive volume of legal reserves to the member banks in the third quarter 1980 (annual rate of increase 13.2%), Volcker's defense was that there are two types of legal reserves: 1) borrowed (reserves obtained by the banks through the Federal Reserve Bank discount windows), and 2) non-borrowed (reserves supplied the banking system consequent to open market purchases). He advised the congressmen to watch the non-borrowed reserves -- "Watch what we do on our own initiative." The Chairman further added --- "Relatively large borrowing (by the banks from the Fed) exerts a lot of restraint."
This is of course, economic nonsense. One dollar of borrowed reserves provides the same legal-economic base for the expansion of money as one dollar of non-borrowed reserves. The fact that advances had to be repaid in 15 days was immaterial. A new advance could be obtained, or the borrowing bank replaced by other borrowing banks. The importance of controlling borrowed reserves was indicated by the fact that at times nearly 10% of all legal reserves were borrowed.

Ben Bernanke's Tightrope Act

The last vestige of legal reserve and reserve ratio requirements against the Federal Reserve Note, demand deposit, and inter-bank demand deposit liabilities of the Reserve banks was eliminated in 1968. Today the Federal Reserve Note has no legal reserve requirements, and the capacity of the Fed to create IBDDs has no legal limit. These IBDDs are owned by commercial banks; they are bank legal reserves and can be converted dollar-for-dollar into Federal Reserve Notes. The volume of FRBIBDDs is almost exclusively related to the volume of Reserve Bank credit. When Federal Reserve Banks expand credit, for example by buying U.S. obligations, the balance sheets of the Banks reflect an increase in earning assets and an equal increase in IBDD liabilities, i.e., legal reserves.

Let the Fed buy the entire federal budget this year all the while raising reserve ratios to counter-balance the purchases.

Ben Bernanke's Tightrope Act

Volcker was a joke.