OPEC Tells the U.S. Consumer to Drop Dead…Care to Guess Why?
03:33 by John Galt. Filed under: Whatever
By John Galt
December 27, 2010
While we all enjoyed time with our families this holiday weekend, the nation of Qatar dropped a bombshell headline via Reuters (the link below is via 24/7 Emirates Business) which should be a hint as to how bad the situation in 2011 is going to get for the American consumer:
Opec will not hike output in 2011, says Qatar
The Kuwaiti and Qatari governments are not the primary representative for OPEC and their minions but when the Saudi government wishes to send a message, the lesser Gulf states are used to send it and in this case the message is loud and clear (from the article of December 25th):
The world economy can withstand an oil price at $100 per barrel, Kuwait's oil minister said on Saturday.
Asked in Cairo if the global economy can stand a $100 oil price, Minister Sheikh Ahmad Al-Abdullah Al-Sabah said: "Yes it can".
Asked if he foresaw a rise in oil production, Sheikh Ahmad replied: "No, more compliance, more compliance".
Meanwhile, Qatar's oil minister Abdullah Al-Attiyah said on Saturday he did not expect Opec to meet before its scheduled gathering in June 2011.
So why the shift in opinion of the OPEC nations that $80 oil was acceptable and that prices at $100 or higher might just be intolerable for the Western economies, thus hurting the cartel? It could be related to this:
The first question most people would ask, logically I might say, is what in the same heck does the balance sheet and reserve expansion of the Federal Reserve Bank of the United States have to do with a flea farting on a camel's butt in the middle of an OPEC desert sheikdom?
The answer is: EVERYTHING
The price of oil is unfortunately still denominated primarily in U.S. Dollars. Thus the more dollars the American banksters demand to be printed to bail their sorry butts out for bad decisions over the last three years, the greater the likelihood of hyperinflation and thus further dilution of the value of said dollar and destruction of the true value of the primary commodity that the OPEC cartel exports, aka, petroleum and its byproducts. This deterioration in purchasing power could be easily displayed in two graphs, the first one reflecting the price of oil since the approximate start of the financial crisis in the United States:
The unseasonable increase in prices might well seem to be just a "fluke" to the mainstream media and those who pontificate that this is all those "evil Arabs" exploiting our "recovery" but the reality is found in the first chart where the central bank has elected to dilute the value of our currency and thus attempt to export inflation to those nations which produce petroleum based products. The inevitable problem with an increase in gas and diesel prices however, is the slowing of the American economic engine and that has been foretold in the two circled regions on the chart below where goods purchased as a whole, including durable and non-durable (Source: BEA GDP and components via the Federal Reserve) which illustrates that with each successive run up in petroleum prices, a decline in goods purchased occurs:
This chart basically understates the obvious, the purchase of goods is not a leading but more accurately lagging indicator as to the future economic activity when you compare the price of gasoline and diesel. If you look at the circled areas, a spike in fuel prices lead up to an eventual decline in the purchase of all goods. This spike we are seeing now should and probably will result in a reduction of economic growth in the first quarter of next year and even more dramatic reductions in the second and third quarters. The Bubblemedia will proclaim the higher prices as a result of "demand" and the need for the American economy to keep expanding but the truth is that the monetary infusion is insufficient to do anything beyond inflating commodity prices and destroying what is left of the middle class. Thus I warn once again that the euphoria being expressed by "retailers" and Keynesian idiots will be short lived. The nations that do business with the U.S. are sick and tired of subsidizing our debt and consumerist mindset which means that the line in the sand, pardon the pun, has been drawn. These nations, along with numerous others, are no longer going to import inflation just to keep the American public as a happy customer.
The inflation we have been exporting since 2003 is about to come home to roost and sadly for the average American, especially those that are unemployed or underemployed, it will impact at a magnitude unseen since Weimar Germany.
johngaltfla.com
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