And this is what we are up against when it comes to Russia:
"Russia has effectively renationalized its energy industry since Putin took over. The government now owns 50% of all oil reserves and 89% of the gas reserves. And these are big numbers when you consider that Russia is the largest producer of energy in the world. That's right, the largest. And Medvedev, the alleged new boss of Russia, was Chairman of Gazprom, the largest of the Russian energy companies, before he became Putin's official lackey.
Russia has a near monopoly on pipelines that carry the goods to the many European countries that depend on Mother Russia for its natural gas, their principal heating fuel. The U.S has little economic sway with Russia, since last year's total trade between us and them totaled $26 billion, which is less than one month's trade with China. Putin can do pretty much as he wants in the region.
It's surprising then that the price of oil continued to fall last week with the Russia/Georgia confrontation. Perhaps it's sign the price was just way out of whack, but more probably, it's a sign that the world's economies are all slowing at the same time. GDP in the Eurozone contracted .2% in the second quarter, and Japan and the UK are flirting with recession.
The second-quarter GDP for the U.S. will be revised up from the originally reported 1.9% to something more like 2.5%, or even more, as our trade deficit was surprisingly better than expected. Exports were very strong, reflecting the weakness of the dollar, but with the change in the dollar's fortune, this advantage will become less pronounced.
But it won't disappear altogether. Even with the recent rise, the dollar is still 44% lower vs. the euro than it was in 2000. The rally will have to go much further before the trade advantage is eliminated, but weaker overseas economies will begin to impact the benefits export trade has given us. Exports grew at a 9% annual rate in the second quarter, and that rate is not likely to be maintained. |
