This and That

Election 2008 and Price of Crude

The price for crude is well below its peak this year and below the ‘Koshla’ threshold that makes alternative energy projects viable.

The current tax breaks for alternative energy projects are set to expire in December and congress is refusing so far to do anything about it.

The economic slowdown in the rest of the world is not really impacting China’s still booming economy and the demand for natural resources are accelerating (take a look at Brazil and Canada).

The recent strengthening of the dollar is nothing but artificial caused by the US Treasury selling 8B Euros and buying 26B in US $ almost the same day. The markets are fluctuating violently as investors react irrationally to news, moving large positions from tanking commodities to the dollar with no good fundamental reasons.

What is wrong with this picture?

This is no coincidence. OPEC finally realized that they pushed crude prices too far. They have much to gain from a Republican victory in November and any delay in US’ commitment to develop alternative energy resources only extends their grip on the world economy (remember all of this started with an artificial shortage of oil production).

High oil prices are not the root cause of the problems in US economy but the catalyst that initiated the chain reaction and the extent of the meltdown. It is just like September 11: the plane crash did not bring the tower down but the fires that followed compromised the integrity of the structure which led to its collapse.

I bet the artificially low crude prices are going to quickly change after the election regardless of who wins the White House - crippling the US economy further, and fatally weakening the dollar.

By ‘saving’ Fannie & Freddie, taking on their [500]* 5 trillion $ (yes trillion) debt, the US averted a worldwide credit meltdown. They also let the sovereign banks off the hook. They paved the way for Treasuries to slowly shift their foreign reserves out of the dollar until the US $ is no longer the world currency.

I hope I am wrong! If the US $ is no longer the reserve currency, now we are talking about depression greater than “The Great Depression”.

* Correction: [Originally I made a mistake and wrote $500 trillion instead of $5 trillion - the correct number is $5 to $6 trillion of half of the roughly $12 trillion outstanding mortgages in the US.

The capital cost for taking on this debt is expected to be $200B, so think about it the government (we the people) are leveraging ourselves 25x to 30x!]