Source: 321 Energy - Gary Dorsch, Editor, Global Money Trends
Cleaning up the mess that Mr Greenspan left behind was never going to be easy. Banks and brokers around the world face more than half-trillion dollars in write-offs as a consequence of the US sub-prime mortgage crisis, which is spreading from the US property market and roiling global stock markets. It’s toppled the US economy into a recession and the tremors are also rattling Asian stock markets.
Roughly $7 trillion has been wiped from world stock markets since the beginning of the year amid fears of a severe US economic recession and financial institutions reporting more mega losses. “The market crisis will preoccupy us well into 2008,” he said German Finance Minister Peer Steinbrueck on Feb 15th. “The financial risks securitized by banks contained packaged explosives,” and he accused rating agencies of having a conflict of interest in the role they played in the process.
So far, the Bernanke Federal Reserve has pumped more than half-a-trillion dollars into the markets with open market operations and special emergency lending schemes, to help cushion the blow to the US economy and stock markets. However, there’s evidence that the Fed’s prescription for dealing with the sub-prime debt crisis, is actually making matters much worse, and leading to “Stagflation.”
As the Fed’s rate cuts and massive money injections filter through the financial system, it weighs heavily on the US dollar, and in turn, a weaker dollar inflates huge bubbles in the global commodities markets. Fund managers have already poured an estimated $200 billion into commodities across the board, as a hedge against the explosive growth of the world’s money supply, competitive currency devaluations, and the negative interest rates engineered by central banks.
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The price of crude oil was trading near $70 a barrel as recently as last August, when the Fed suddenly jolted the markets, by lowering its discount rate to 5.75% on Aug 17th, timed to squeeze short sellers in the stock market, on options expiration day. The Fed’s abrupt shift towards easy money fueled a 1,500-point rally for the Dow Jones Industrials over the next two months to a record high of 14,100.
But the stock market’s “irrational exuberance” didn’t last long, once the unintended consequences of the Fed’s rate cuts, a - Global “Oil Shock” – began to settle in. In trying to rescue the Dow Jones Industrials from the claws of a grizzly bear market, the Fed has sacrificed the US dollar, and in turn, ignited a powerful surge in the price of crude oil to $110 /barrel. And most US recessions in the post-World War II era were preceded by sudden spikes in oil prices.
On Feb 15th, Fed chief Ben Bernanke played down the threat of spiraling energy and food prices, saying “inflation expectations remain reasonably well anchored,” then signaled another rate cut in March, as an “insurance policy to head off an economic recession.” Since then, the price of crude oil has surged $17 /barrel, and is wrecking havoc on Wall Street and other major stock markets around the globe.
Global investors are plowing money into crude oil, because the longer-term fundamentals are bullish. The International Energy Agency is predicting that global oil demand will rise 2% this year to a record 87.5 million barrels per day. And a growing number of oil investors subscribe to the “Peak Oil” theory that holds to the belief that the global oil supply has already maxed out at 85 million per day.
The “Peak Oil” theory refers to the inevitability of a peak in global oil production. Oil is a finite, non-renewable resource, and once half of the original reserves are depleted, oil production is likely to stop growing and then begin a terminal decline. Of the 65 largest oil producing countries in the world, 54 are past their “Peak Oil” production and are now in decline, including the USA, down 11% since 1971, and the UK’s North Sea down 27% since peaking in 1999.
Other big oil producers in decline include Australia, down 26% since 2001, and Norway, down 13% since 2001. The Cantarell oil field, Mexico’s largest has also peaked with its output falling to 1.7 million bpd in 2007, down from its peak output of 2.1 million bpd. Thus, global oil demand is expected to exceed supply in the second half of this year, and the oil deficit will only grow wider in 2009, unless the global economy sinks into a sharp recession.
......this article is way too long to post so I'll leave the link.
http://www.blacklistednews.com/view.asp?ID=5881
