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Edited on Tue Nov-18-08 01:09 PM by kenny blankenship
So oil was the focus of whatever speculative energy was left in the capitalist system.
But then the financial system crashed--the whole thing--and so oil crashed along with everything else that had been inflated through the application of extreme leverage. It's like the Nasdaq bubble: in the last week of 1999 Yahoo was almost 110 dollars a share, but by March of 2001 it was under 7 dollars a share. Yahoo wasn't serving fewer internet searches in 2001 or posting fewer stories than it had been in 1999, and they didn't sell fewer ads --it's just that the bubble had collapsed for all Nasdaq stocks. It would go even lower in the week of Sept. 11, but then as a response to the attacks the government soon announced that it would be providing emergency assistance to the airlines, plus war was in the air (and that means a lot of money will be flying around) and the Fed opened the tap on credit as it had prior to the Nasdaq bubble after the failure of Long Term Capital Management tanked the Dow in 1998. Why had a bubble risen in technology stocks after collapsing in the NYSE? The narrative was that Y2K necessitated all manner of computer and microprocessor replacement, of but the underlying truth is much simpler: people just wouldn't believe the Dow would run up forever anymore, so the bubble shifted exchanges over to the Nasdaq. There was abundant credit to fuel speculation and off it went. And likewise, after the Nasdaq bubble burst people just wouldn't believe that they had to borrow all the money they could in order to buy Nasdaq stocks. The fresh supplies of credit, when they became available, went off to a different field to blow bubbles--this time into real estate. The real estate bubble reached its max expansion when they started selling houses and writing mortgages to people who could not possibly pay back the money. When those mortgages adjusted up and defaults began to weigh down the mortgage banking industry, real estate was over, and the financial industry had to seek a new field once more where they could play their leverage games. Not much was left besides commodities. But commodity prices get killed in severe recessions and so the spike in oil prices went up and down quickly. In a recession so severe people call it a depression there is outright destruction of demand for things like oil. You can't maintain the illusion that the price of oil is bound to rise even more sharply in the future when reports start coming back showing people are using less of it. Also, speculative positions in oil get liquidated like anything else to conserve cash in a panic. It had nothing whatever to do with the election. The essential thing that many people seem to be missing or wholly ignorant of is that the engine in all of these bubbles is the same: excessive credit supplied (knowingly) by central banks to fuel speculation. Which class of asset wall street seizes upon to create a sharp rise in prices is unimportant. It could be anything including tulips. But once the people's credulity has been burned out over one kind of asset it won't come back anytime soon. They have to be switched to something else. A narrative justification is required. In oil the prospect of war in the middle east helps create that narrative, but the main driver is misallocation of credit. And this is a deliberate "mistake"; there's nothing accidental about the patterns of the last ten years. Behind all the recent bubbles stand trusted institutions staffed by intelligent, highly educated people who are supposed to know better. But for whatever reason you prefer, they choose to engage in the business of driving the price of an asset class higher, selling larger and lower strata of investors on the idea that This wampum stuff is going up forever, borrow max out your credit to buy wampums now they'll only be more expensive later! Productive enterprise can't get a bid or backing in such a climate and the Mother Of All Crashes becomes inevitable.
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