USD disconnected to Gold (as Nixon ended the Gold standard) forced money to find what could store value.
This search for means of storing value has only managed to create bubble after bubble. But let's ;eave that aside for the moment.
The US tried homes as store value, (people was putting their savings in houses) In the United States, probably more money has been made through the appreciation of real estate than in any other way, that ended in 2008.
Oil until this year has been, informally, the 'Oil Standard'. Could be kept -relatively- stable as Saudi controlling the amount on the market.
The fact that most of the oil was stored inside the ground of Middle Eastern countries, Russia and parts of Africa, forced the US to do a quick side step dance and apply science and risk capital to find oil under its own ground the commodity that underlies value.
It is natural for oil prices to collapse. Gold is rare. Oil is not rare. Oil just need more science, more capital and more risk taking to make it more widely available.
Once the means to discover oil becomes more widely available, it is just natural that the value of the oil stored under ground loses value.
If we look at this under this perspective, we may conclude that low cost oil is here to stay.
We can also say that the value of US homes will never skyrocket again as it is no longer storage of value.
What are the Saudi doing?
The Saudis afraid of losing the position of power and with it the means for paying to keep its culture intact. Imagine the Saudis thinking: In order to survive we have to become a Dubai!
What are the Americans doing?
Americans are saying, well, the USD is already toast, the Euro may become common currency of six countries, and, for all practical purposes, we can count Japan out.
We need to have some commodity underlying the value of the USD else it loses its standing as world currency.
How about the USD getting strong you may be asking, it does not look like toast.
The USD you hold in your hand is a misrepresentation of reality. It is a construction of what I answered the what are the Americans doing question.
Intrinsically the USD is toast, but it is being manipulated marketed and positioned (see GDP jump of 5%) to keep the misrepresentation alive and believed. |
