The Price of Oil is Easily Explained

[louis c]

I know a lot of economists want to make the price of a barrel of oil a complicated matter, supply and demand and all that. We hear all this geo-political gobbledygook and such. Cyclical nonsense and all that other bullshit to cover for the Bush Administration's incompetence. Kudlow is the best for that.

However, here's a simple answer. In January, 2001 Gold sold for about $263 an Oz., Silver was about $4.50 an Oz. and Oil was about $26 a barrel.

Today, all those numbers have increased by roughly the same amount, three fold. Gold is $725 an Oz. Silver is about $13 an Oz. and Oil is about $70 a barrel.

The answer is simple. The American Dollar isn't worth shit. The Federal and personal debt, the balance of trade deficit, the Federal Budget deficit and the overall lack of confidence in this administration has caused our good old green backs to become deflated currency.

We are being propped up by our enemies, OPEC and China. If they call in their dollars, we're cooked.

Bush has sold us out and I think we are facing the greatest catastrophic financial crisis in history.

I hope I'm wrong but I'm afraid I'm not.

[ixion]

1. Cheney's Energy Task Force

that's my bet. That's why they've gone to such great lengths to protect the minutes of the meeting.

[Klukie]

2. I think....

you are right on the money! I think we are in for some bad times.

[MercutioATC]

3. You're correct in a way...the increased prices are all due to speculation.

There's no less gold or silver out there and we're at a 20+ year high for oil supply.

People are speculating, and that drives prices up. What happens when they stop? Prices drop back to market-driven levels.

[ComerPerro]

19. I think most of the gold and silver is speculation, and some of the oil

[Poppyseedman]

4. You are correct if you look at the small picture, but

the value of a American dollar is far more complex than using three different examples.

Gold, Silver and Oil may be three times as expensive as it was in 2001, but other goods and services have not remotely increased 3 X or may even cost less.

The high end laptop computer you bought in 2001 for $2,400 now runs about $800. Exactly opposite example.

http://data.bls.gov/cgi-bin/cpicalc.pl
http://minneapolisfed.org/Research/data/us/calc/
http://eh.net/hmit/compare/
http://stats.bls.gov/

[louis c]

5. These three commodities are finite and international

Gold is the most reliable barometer of the strength of the US dollar.

That's why we had a gold standard and a silver standard.

Not to sound sarcastic but the dollar was only redeemable in gold or silver, never in computers, TVs or toaster ovens.

[Telly Savalas]

15. Actually the dollar is redeemable in computers, TVs and toaster ovens

If you go to a store which carries such merchandise and give them a sufficient quantity of dollars,they will give you the desired item in return.

Since most people have more use in their everyday lives for household appliances than precious metals, it's pretty reasonable to measure the power of a currency by its ability to buy consumer goods.

[louis c]

17. I'm talking about the government redeeming dollars

but nice try, anyway.

You see, if you have 25 pounds of gold, it still makes sense to increase that amount to 50 pounds.

But once you have 3 TVs, you would have to be an idiot to increase that number to 10 for personal use or investment.

[Poppyseedman]

16. The US dollar is no longer valued against gold

You used the operative word "had" a gold standard. We operate under a Fiat currency system

http://en.wikipedia.org/wiki/Fiat_currency

The dollar is only redeemable in gold or silver? I have a household full of goods I bought with something other then gold or silver.

If we operated under a gold standard, unless you were born into wealth with loads of assets, you could not buy anything on credit, your car, home, or anything else your purchase on time.

Not to sound sarcastic, but you need to take an basic financial or economics course.

[louis c]

18. Dollars were redeemable in gold

In other words, for every 35 dollars in circulation at one time there was one once of gold at Fort Knox.

today, for every dollar bill in circulation you have George Bush's word that it's good.

I'd rather have gold behind my money.

[Poppyseedman]

21. As much as I would like to blame bush for every sin under the sun

George Bush's word almost has nothing to do with the value of your money.

Do you really think the real power players in DC would let that happen?

[louis c]

22. Yes

The world can only determine the value of our currency through the confidence in our government. There is no longer any precious metals to back up our dollars.

The Bush Administration and the Republican Congress are our government.

[muriel_volestrangler]

23. Why should the world's economy depend on the supply of precious metals?

The metals are only one very small part of economic activity in the world. Why tie things to them? Do you really think wealth is created primarily by mining small amounts of certain metals? Do you even think that wealth is primarily created by the countries that do the mining?

[louis c]

24. Gold is the constant

by using a constant, all other currencies can be measured accurately.

bushco. can't double-talk their way out of it.

[muriel_volestrangler]

25. But the world economy isn't constant

We produce more goods now than we used to. Some countries can mine gold, while others can't. This bears no relation to which countries are producing goods.

Here's a graph of the gold/oil price:



Oil has an obvious role in the world economy - it's the main way of fueling transport. Gold is a fashion accessory, and has specialised uses in electronics. Why base exchange on a fashion accessory?

[Sinti]

7. Too bad Moore's Law doesn't apply to oil and other finite supply

items.

[Greyhound]

9. Funny you should bring that up...

Went shopping for components to build a new system, and guess what I found. Apparently the hardware industry has consolidated enough that they've made the transition from competition to collusion. It's gonna wreak havoc on Moore's Law.

[rman]

13. price of computers always drops

The 486 you bought 100 years ago can be had for free now.
New computers don't get cheaper though.

Let's look at some other things that have increased in price: all fuels, copper, zinc, aluminum, healthcare...

[Hubert Flottz]

6. I think you are right on the money.(no Pun intended)

Every time the oil goes up a penny the dollar is worth a penny less! Because it's isn't just the price of gasoline that increases, but everything that you buy costs more.

[screembloodymurder]

8. Another way to support the dollar is to use the military.

That's why we're threatening Iran.

[ny_liberal]

10. Value of dollar has nothing to do with price of oil

The price is high if you with Euro's as well

[louis c]

11. Gold, Gold, Gold, Gold

Gold is your unit of measurement.

No shitting the Euro is still weak against oil. It's 80% better against the dollar.

Oil is sold exclusively against the dollar.

Use gold as your constant. It's the only reliable measurement.

[muriel_volestrangler]

12. Why?

[rman]

14. By far most of the oil is traded in dollars

Even if the trade is between nations where the dollar is not the national currency.

[ComerPerro]

20. I do believe Bush when he says that oil prices are high because of

demand as well as uncertainty caused by chaos in the M.E.

Only thing he neglects to mention, of course, is that he is the reason for all this uncertainty and chaos...