Doc's Talk: Gasoline and Dollars: Supply and Demand

Saturday, April 23, 2011

Gasoline and Dollars: Supply and Demand

Steve McCann

Gasoline has exceeded or approached $5.00 per gallon in some parts of the United States long before the normal peak travel season has begun. Already the politicians, headline writers, and some cable and talk show pundits are pointing to the usual suspects. But they have avoided or are unaware of where the fault actually lies.

One of the foundational tenets of economics is what is known as the law of supply and demand. Normally whenever a product or commodity is in short supply the cost to acquire it increases; on the other hand, if there is a glut on the market the price decreases. However, over the past three years, thanks to the profligate fiscal policy of the Obama administration and the Democrats in Congress combined with the money creating monetary policy of the Federal Reserve, this law has been turned on its head.

There are two commodities deeply affected: the first is oil, which is a basic modern day necessity; and the second is gold, which has always been a safe haven against economic downturns that reflect this upside down world.
The fluctuations in the price of oil have been primarily demand-driven, and to a lesser degree impacted by world conditions which is reflected in supply. Since 2003 world oil production has maintained the following relationship with global oil consumption.

Year Ratio Average Price per Barrel (adjusted for inflation)
2003 97.0% $38.66
2004 97.7% $39.87
2005 97.4% $48.29
2006
96.7% $69.94
2007 95.1% $65.74
2008 96.4% $88.40
2009
95.0% $87.60
Current 98.8% $110.00
Source: http://omrpublic.iea.org

As a general rule, the above table follows the anticipated supply and demand equation (with slight variations due to political or weather instability etc). That is until the present, where the correlation is completely thrown out the window. Despite the ongoing stalemate in Libya and general unrest in the Middle East, supply is keeping up with demand. This was underscored by the Oil Minister of Saudi Arabia when he recently announced that the Saudis were cutting production by 700,000 barrels per day due to "market oversupply."

While it is always fashionable and populist to blame the "speculators" and oil companies, those entities are fully aware of the supply situation and would not be taking undue risk when a futures contract in that market situation could easily backfire on them. But they are also aware that another factor has come into play. That is the wholesale creation of money by the Federal Reserve in response to the massive deficits run up by Washington D.C. In reality these are quixotic attempts by both entities to jump start the US economy. Their most significant accomplishment in doing so is to enrich Wall Street and the huge financial institutions deemed "to big to fail" at the expense of the American people.

Oil, as are all worldwide commodities, is denominated in US dollars. The dollar is also the world's reserve currency. What happens in the corridors of power on the banks of the Potomac has an immediate and potentially devastating impact on the rest of the world.

Gold, which has been considered a safe haven and hedge against not only inflation but the follies of an unrestrained government, reflects more dramatically than any other commodity the effect of Federal Reserve policy. During 2007 the average price of an ounce of gold was $695.00 an ounce. In the past week the price has hit $1,509.00, more than double the 2007 price or increased by a factor of 117%.

It is no coincidence that during this same period the Balance Sheet of the Federal Reserve showed assets of $825 Billion throughout 2007; however today it exceeds $2.7 Trillion, a phenomenal increase of 223% or more than triple. Of the $1.8 Trillion increase is $1.4 Trillion of US Treasury debt that the Fed bought and in essence printed money to do so. This has flooded the marketplace with US currency and driven up commodity prices across the board. Additionally this tsunami of greenbacks has created massive problems for emerging countries as the influx of dollars looking for higher returns has overwhelmed their economies, triggering inflation and currency and exchange rate problems around the world.

The Fed, in league with the federal government, chose this course of action in order to underwrite the ongoing crippling deficit by buying the bonds of the US Treasury, which had to be offered as the result of fiscal policies that were supposed to stimulate the economy. The Fed justified their actions by claiming this program, also known as quantitative easing, would make more money available for borrowing by the private sector. It has done neither. Instead it has sown the seeds for stagflation (high unemployment coupled with high inflation).

In the meantime the dollar has lost a considerable amount of value as compared to other currencies. Among the most stable of currencies over the years has been the Swiss franc. In 2007 the exchange rate was 1.22 francs to the dollar; today it is 0.881 to the dollar a decrease of nearly 25%, a drastic drop in the world of currency values. While it is nearly impossible to accurately measure the true impact of currency devaluation and acknowledging that there are always other factors at play, a simple exercise using the Swiss franc and the US dollar relationship applied to the cost of a barrel of oil today reveals that a cost of that oil would be $82.50 instead of $110.00; much more in line with historical patterns.

The fault for the nation's present predicament lies solely at the feet of the federal government, from its spendthrift fiscal program and obstinate refusal to develop America's vast oil reserves, to its Russian roulette monetary policy. As for the evil "speculators," they are indeed speculating on the future rise in the price of oil and gold, but not because of traditional supply and demand factors, but because they are convinced that there is no will in Washington to rein in spending, and that the Federal Reserve will be forced to do another round of quantitative easing exacerbating an already dire situation that can only end in disaster.

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The IDF’s Minorities in Numbers and Pictures

In honor of IDF Diversity Week, we present diversity through numbers and pictures. Each year, more and more Muslims, Christians, Druze, Bedouin and immigrants from around the world take on the responsibility of defending Israel.

MUSLIMS:

Muslim Arab Israelis are not required to draft in the IDF, but there are many who volunteer. In 2013, there were over 200 Muslims serving in the IDF and over 300 in the reserves.

Bedouins:

Bedouins are nomadic Muslims who were in Israel when modern borders were set in place and are now considered Israeli citizens. They are not required to draft but a growing number choose to enlist. In 2012, there were over 1,400 Bedouin Muslim soldiers doing regular IDF service and almost 1,500 in the reserves.

Read more:http://www.idfblog.com/2014/02/27/truth-idf-numbers-pictures/#more-34027

Are you aware that in 2013, Middle class taxes go up-significantly?

In January of next year, the federal income tax rate for middle-class taxpayers is scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent… This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 percent… When half of each additional dollar earned is taxed away, taxpayers experience a disincentive to start businesses or expand existing ones. This leads to fewer jobs being created.

Why is HAMAS Inside Tampa Schools?

Clare Lopez

Kelly Miliziano, who teaches history classes at Steinbrenner High School in the Tampa, Florida area apparently thinks it’s perfectly OK to invite a senior official of a HAMAS-affiliated organization into her classroom to discuss Islam with her students. According to local media reports, not only has this been going on for years, but in spite of the civil and criminal proceedings that could result from such reckless negligence, the Hillsborough County school superintendent, Mary Ellen Elia, and the chairman of the school board, Candy Olson, also expressed approval for students under their responsibility to be exposed repeatedly to guest speaker, Hassan Shibly, who is the Executive Director for the Council on American-Islamic Relations (CAIR) in the Tampa area.
More...

Did You Know... Ignoring the Call to Islam will Bring Jihad

‘Conquest through Da’wa [proselytizing] that is what we hope for. We will conquer Europe, we will conquer America! Not through sword but through Da’wa.’
-- Yousef al-Qaradawi , Muslim Brotherhood spiritual leader The Arabic word ‘Da’wa’ means the “call to Islam.” But do not think that Da’wa is the same thing as an invitation to an optional holiday event. The classical Islamic doctrine of jihad mandates that enemies must be given the opportunity to convert to Islam or pay the jizya tax before it is permissible to attack them.
Clare M. Lopez

Who is being discriminated-facts tell the truth

Religious bias

Hate crimes motivated by religious bias accounted for 1,409 offenses reported by law enforcement. A breakdown of the bias motivation of religious-bias offenses showed:

65.4 percent were anti-Jewish.
13.2 percent were anti-Islamic.
9.5 percent were anti-other religion, i.e., those not specified.
4.3 percent were anti-Catholic.
3.8 percent were anti-multiple religions, group.
3.3 percent were anti-Protestant.
0.5 percent were anti-Atheism/Agnosticism/etc.

http://www.fbi.gov/about-us/cjis/ucr/hate-crime/2010/narratives/hate-crime-2010-incidents-and-offenses.

On March 31, 1977, the Dutch newspaper Trouw published an interview

with PLO executive committee member Zahir Muhsein. Here's what he said:

"The Palestinian people does not exist. The creation of a Palestinian state is only a means for continuing our struggle against the state of Israel for our Arab unity. In reality today there is no difference between Jordanians, Palestinians, Syrians and Lebanese. Only for political and tactical reasons do we speak today about the existence of a Palestinian people, since Arab national interests demand that we posit the existence of a distinct "Palestinian people" to oppose Zionism.

For tactical reasons, Jordan, which is a sovereign state with defined borders, cannot raise claims to Haifa and Jaffa, while as a Palestinian, I can undoubtedly demand Haifa, Jaffa, Beer-Sheva and Jerusalem. However, the moment we reclaim our right to all of Palestine, we will not wait even a minute to unite Palestine and Jordan."

In March 1977, Zahir Muhsein, a PLO executive, said:

"The Palestinian people does not exist. The creation of a Palestinian state is only a means for continuing our struggle against the state of Israel for our Arab unity. In reality today there is no difference between Jordanians, Palestinians, Syrians and Lebanese. Only for political and tactical reasons do we speak today about the existence of a Palestinian people, since Arab national interests demand that we posit the existence of a distinct Palestinian people to oppose Zionism."

"For tactical reasons, Jordan, which is a sovereign state with defined borders, cannot raise claims to Haifa and Jaffa, while as a Palestinian, I can undoubtedly demand Haifa, Jaffa, Beer-Sheva and Jerusalem. However, the moment we reclaim our right to all of Palestine, we will not wait even a minute to unite Palestine and Jordan."

The Arab Apartheid

Ben-Dror Yemini
In 1948, the Arab countries refused to accept the UN partition proposal and they launched a war of annihilation against the State of Israel which had barely been established. All precedents in this matter showed that the party that starts the war - and with a declaration of annihilation, yet - pays a price for it. Between 550,000 and 710,000 Arabs fled because of the war and a larger number of 850,000 Jews were expelled or fled from Arab countries (the "Jewish nakba").
Population exchanges and expulsions were the norm at that time, occurring in dozens of other conflict points and affecting about 52 million people. In all the population exchange precedents that occurred during or at the end of an armed conflict, there was no return of refugees to the previous region, which had turned into a new national state.
Only the Arab states acted completely differently from the rest of the world. Instead of assimilating the refugees, they crushed them despite the fact that they were their coreligionists and members of the Arab nation - instituting a regime of apartheid. So the "nakba" was not caused by the actual dispossession, which had also been experienced by tens of millions of others. The "nakba" is the story of the apartheid, oppression, abuse and denial of rights suffered by the Arab refugees at the hands of the Arab countries. (Maariv)

International Law and Military Operations in Practice - Col. Richard Kemp

"Islamist fighting groups study the international laws of armed conflict carefully and they understand it well. They know that a British or Israeli commander and his men are bound by international law and the rules of engagement that flow from it. They then do their utmost to exploit what they view as one of their enemy's main weaknesses. Their very modus operandi is built on the correct assumption that Western armies will normally abide by the rules, while these insurgents employ a deliberate policy of operating consistently outside international law. "

Lost Historical Moments

What Rabin’s last Knesset speech really said:repudiation of a Palestinian state

Rabin ruled out a fully sovereign Palestinian state :

“We view the permanent solution in the framework of State of Israel which will include most of the area of the Land of Israel as it was under the rule of the British Mandate, and alongside it a Palestinian entity which will be a home to most of the Palestinian residents living in the Gaza Strip and the West Bank. We would like this to be an entity which is less than a state, and which will independently run the lives of the Palestinians under its authority.”

Rabin ruled out a total withdrawal from Judea and Samaria and thus a return to the pre-June 1967 borders :

“The borders of the State of Israel, during the permanent solution, will be beyond the lines which existed before the Six Day War. We will not return to the 4 June 1967 lines.”

Rabin ruled out withdrawing form the Jordan Valley:

“The security border of the State of Israel will be located in the Jordan Valley, in the broadest meaning of that term.”

Rabin ruled out uprooting settlement blocs, like the Gush Katif bloc in Gaza (which was subsequently uprooted by former Prime Minister Ariel Sharon):

“The establishment of blocs of settlements in Judea and Samaria, like the one in Gush Katif.

AND

Rabin ruled out removing any settlement before coming to a full peace agreement with the Palestinians:

“I want to remind you: we committed ourselves, that is, we came to an agreement, and committed ourselves before the Knesset, not to uproot a single settlement in the framework of the interim agreement, and not to hinder building for natural growth.”

Rabin insisted on Israel retaining full security control of the borders with Egypt and Jordan, contrary to Israel’s relinquishment of the Philadelphia Corridor on the border with Egypt:

“The responsibility for external security along the borders with Egypt and Jordan, as well as control over the airspace above all of the territories and Gaza Strip maritime zone, remains in our hands.”

Correcting Oslo Myths-Part 2

3) Kuttab laments that the post-1993 Oslo process resulted in a Palestinian Authority "whose ministers and legislators are not guaranteed passage between Gaza and the West Bank ...."

Before free passage or other perquisites, PA leaders were obligated, among other things, to eliminate the terrorist infrastructure in the West Bank and Gaza Strip, end anti-Israeli, antisemitic incitement in schools, mosques, and communications media, and resolve all outstanding issues through peaceful negotiations. They met none of these commitments, sometimes bolstering terrorism and greatly increasing incitement.

4) Kuttab complains that under Oslo the PA got "lightly armed police ---- but no real sovereignty over the land or contiguity between our communities in Gaza and the West Bank."

Oslo agreements repeatedly were revised, regardless of Palestinian non-compliance, until the authorized number of police grew from 8,000 to 40,000. Though they were to be the only armed forces in the territories, Israeli estimates early in the second intifada put the number of gunmen - police, "security services," terrorists, and armed gangs - at 85,000. Their armament reportedly included not only heavy machine guns and rocket-propelled grenades, but also anti-tank and anti-aircraft missiles.

Sovereignty was to be negotiated in the envisioned 1998 "final status" talks - after a five-year period of confidence-building. Palestinian leadership chronically undermined the process. Palestinian terrorism made the 1993 - 1998 Oslo period more deadly for Israelis than the 15 years preceding it.

The United States doesn't have contiguity between the lower 48 states and Alaska and Hawaii; territorial contiguity between the West Bank and Gaza Strip - that is, through the 20 miles of Israeli territory between them - was never promised and would destroy Israeli contiguity.

5) "Palestinians have been made to endure hundreds of checkpoints in the West Bank, an eight-foot wall deep in our territories, and tight Israeli control over borders."

The security barrier is not "deep in Palestinian territories," but rather encompasses less than 8 percent of Judea and Samaria, and is mostly a fence, rarely a wall; the land in question is not "our [Palestinian] territories" but disputed territory to which, according to the authors of U.N. Security Council Resolution 242, Jews as well as Arabs have claims; and there are no international borders, only the 1949 armistice lines with Jordan. Under 242, borders remain to be negotiated. As for checkpoints - like the security barrier and "tight Israeli control" - Palestinian Arabs precipitated these measures themselves. No terrorism and there would be no fence or tight Israeli control and few checkpoints - like before the first intifada.

Correcting Some Oslo Myths

1) In Oslo "Israeli, Palestinian and other world leaders promised that ... Palestinian sovereignty would be solidified."

No, they didn't. The 1993 Declaration of Principles and subsequent Oslo agreements outlined a process by which final status negotiations about the West Bank and Gaza Strip would be reached. The process required an end to anti-Israel terrorism and incitement and a commitment to peaceful negotiations. The PA, Fatah, Hamas, Islamic Jihad, the Popular Front for the Liberation of Palestine, and other terrorist groups, sabotaged the process from the start.

2) "The reality is that, in defiance of U.N. Security Council Resolution 242, which states that it is inadmissible to occupy land by force, Palestinian territories are still under foreign military occupation."
Wrong again. Resolution 242 (1967) does note "the inadmissibility of the acquisition of territory by war." It also affirms the right of every state in the area "to live in peace with secure and recognized boundaries free from threats or acts of force." There were no "Palestinian territories." Jordan occupied the West Bank, Egypt controlled Gaza. Israel did not have "secure and recognized boundaries," so retention of some of those territories was possible under 242. Israel is not a "foreign" military occupier in the West Bank but, pending final negotiations, the lawful military administrator as a result of a successful war of self-defense.

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