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Bill:
Let me add just one small item here. Everyone is talking about OPEC again. Now, I am a proponent of
free market economics, so don't mis-read this. But at the turn of the last century, the large US
oil companies were broken up into an entity called the 'Seven Sisters.' For most of the 20th
century, the oil companies fragmented further and further into less coherent and non cooperating
firms. Late in the 1990's, some very shrewd CEOs used the plummeting price of oil to do the best
sort of inventory control possible: They turned from oil exploration to oil field inventory
consolidation. While most of the world is busy reading articles about OPEC, there are very few
stories written about the piecing together of these once mighty oil companies. The Seven Sisters
have basically been reunited and are certainly in control of oil inventories that are much larger
than the state controlled oil fields of OPEC. These firms ate each other up after driving down the
price of crude and now, after emerging as a few large multinationals, are more than willing to
allow the price of oil to rise. And if OPEC gets the blame...why should they complain?
Best,
Tim Morge
Bill Bancroft wrote:
> Norman,
>
> One amendment to your theory---Al Gore is the executor of his father’s estate, which holds
> nearly $500,000 worth of Occidental Petroleum stock. So it would seem OPEC can't lose (ABC
> news ran a story on this two days ago).
>
> OPEC does not want to hurt the world economy with excessively high oil prices, but at the same
> time, OPEC does not want oil prices to crash back down to $10-----OPEC wants its own version of
> a "soft landing".
>
> nwinski wrote:
>
> > The dilemma I see is that this huge spike in oil prices is threatening the
> > world economy. $30 + for
> > oil is inflationary and the price of just about everything will be going up in
> > the next few months. Given the outlook for both inflation and recession, which
> > dragon should Greenspan fight? Should he raise interest rates to fight
> > inflation and possibly exacerbate any possible recession? Or does he do
> > nothing and risk letting inflation get out of hand? That is a dilemma that is
> > a very real possibility and no one is talking about it.
> >
> > Now, let's think about why OPEC would want to jack up oil price to the
> > point it could cause a recession or economic slowdown in an election year?
> > They have been aware that the high oil price could be a problem for the world
> > economy for several weeks, but have done nothing but pay minor lip service.
> > Could it have anything to do with a Texas (read Oil friendly) governor is
> > running for President and a nice little recession could help plant a Bush in
> > the White House? I wonder?
> >
> > Cheers,
> >
> > Norman
> >
> > P.S. Gore says he invented the internet and Bush is Gov. of Texas and was in
> > the oil biz. This Gore vs. Bush race seem to me like an interesting metaphor
> > for our society and economy as the "new ecomomy i.e. internet" battles the old
> > economy i.e. Oil do battle for supremecy.
> >
> > Daniel Goncharoff wrote:
> >
> > > It is important to understand the problem faced by Greenspan.
> > >
> > > The market goes up in an 'irrationally exuberant' way. He says he will
> > > take away the punch bowl as soon as he sees signs of the party getting
> > > out of hand, ie, when he sees inflation rise.
> > >
> > > The economy keeps growing at a healthy pace. But inflation doesn't rise.
> > > Instead, the increase in wealth from the stock market is reinvested, not
> > > spent.
> > >
> > > This leaves Greenspan with a dilemma. Does he raise interest rates
> > > anyway, risking stifling the economy and creating a deflationary
> > > environment? Or does he wait for signs of the stock market bubble
> > > translating into artificially higher asset prices?
> > >
> > > Obviously, he has done the latter. But inflation is not there. The
> > > wealth effect is much smaller than economists would have expected.
> > >
> > > The FT recently had an article saying that spending patterns of
> > > individuals reflect a 75% expectation of a serious market downturn.
> > >
> > > Perhaps it would have been better to assume that raising interest rates
> > > would not have an important economic impact. Perhaps not...
> > >
> > > Regards
> > > DanG
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