Spengler: It's not peak oil

It is a fantasy worldview that denies any peak oil/futures market connection to increased oil prices.

Spengler is right about the falling dollar, inflation, etc. Those issues are part of the problem but not THE problem. It is a complex issue with many factors.

Does Spengler really think that improving the dollar against foreign currencies,lowering taxes, and raising bank rates will "fix" the oil price problem?

High oil prices are here to stay. We better learn to conserve, live with less. The consumption gorging by Americans is coming to an end.

Bruce Gerencser
http://www.worldofbruce.net

I agree with Bruce.

The trouble with Spengler's article is in its simplistic construction: "The problem isn't X, it's Y." It seems to me that almost every article about the oil crisis is in this form.

The reality is likely much more complicated. "X and Y are both separate problems leading to a single consequence," or "X is only a problem because of Y," or "X and Y are mutually aggravating problems," or any of a number of other possible complex relationships.

For some reason, we're conditioned to try to find the root cause, even when there might easily be more than one. Every new identified cause does not disprove the last one.

If I'm reading Spengler right, I don't think he's saying that "falling dollar = higher oil price". Rather, he's saying that a loose monetary policy on the part of the Fed is leading to _both_ a decline in the dollar, _and_ rising commodity prices (as loose monetary policy causes investors to seek inflation hedges via commodities speculation)(*). Both are defensible positions, AFAIK.

One quibble about his economic history. IIRC, a major cause of oil price declines in the '80s was lack of production discipline among OPEC members. The advent of alternate supplies of oil, and some degree of conservation, also helped.

I do like the idea of indexing capital gains tax to inflation.

(*) Re. interest rates & commodity prices, see here: ksghome.harvard.edu/~jfrankel/CP.htm

I draw your attention to the linked C-Span program.

It is a hearing by the House Energy & Commerce subcommittee. The four panel members are all investment industry leaders. Their testimony begins around 45 minutes into the video.

While they disagree on some details, they all agreed on some basics:

1) Oil commodity speculation has a significant impact on the US economy, in particular by speculators who have no intention of taking delivery of the oil the "purchase".

2) The margin limit for equities and bonds is 50% (if you don't know what margin is, look it up right now). Oil commodities are being purchased with a 5% margin right now. That must stop.

3) The short-term effect on consumer prices can be significant if the government acts to replace commodity profits with controls on prices. Oil supply is not the only pressure on prices, but commodity speculators have a significant impact on supply.

The above is how I understood it, watching the taped testimony on C-Span on Sunday.