Silver linings?
"Every cloud must have a silver lining," goes the song. In the current economic crisis, when the Dow Jones has fallen 37% since the beginning of September, what could possibly be the silver lining?
There are three aspects. First, the fall in the price of gasoline (petrol). Since there is less money around, people are losing jobs and Banks are failing, so the demand for high-priced gasoline has greatly dropped. In order to keep up sales, OPEC, the oil cartel, has been forced to lower the price of a barrel of crude oil from a high of ca. $150 per barrel now down to ca. $65, less than half. Remember, that even though these prices seem exorbitant (a barrel used to cost $5) the actual value of a barrel of oil is only what the market will bear. The lowering of the cost of a barrel of oil has concomitantly reduced the price of gasoline at the pump from a high of nearly $5 a gallon in the US (its twice that in most of Europe) back to ca. $3 now.
In order to halt the slide in gasoline prices, some members of OPEC (including Saudi Arabia) have started to cut oil production. This is a typical response by a cartel to reduced product prices. But, there are enough members of OPEC and other oil producers that are hurting financially (because of cuts in sales as well as losses in their investments) that they won't be able to cut production without getting into severe financial difficulties, such as Russia, Nigeria and others. So cuts in oil production may not become a source of serious concern.
Among the countries that depend on selling oil is Iran. This means that the Iranian regime will be making half as much money on its crude oil sales. As a consequence they might not be able to support the tremendous costs of developing nuclear weapons, at the expense of food for their people. The economic situation in Iran is already so bad that this might help to tip the scales against their rapid development of nuclear weapons. Maybe that's why Ammedinejad is reported to be ill these days.
Another silver lining is the decreased value of the dollar. Here in Israel the dollar strengthened from last year when it was ca. 4.2 shekels to the dollar, down to 3.4 before the crisis hit in September. In the last two months it has risen to 3.8 to the dollar. So a weak dollar is an advantage for those of us who live on dollars, including those companies whose buying depend on the dollar exchange rate. This should have a world wide effect, especially when the Euro is hurting.
It is customary for the voting population to blame the party in power for any economic crisis, so that means the Republicans in the US and the Labor Party in England. I know it doesn't make much sense, but that is the usual case. However, in the US, the election of a Democrat usually presages a fall in the stock market, because the Republicans usually favor cutting Govt. spending and the Democrats usually increase it, with more extensive social programs. It could be argued that the electorate are subtle controllers of the economy, switching parties every few elections so that the average keeps the economy moderated. However, in this situation when the market is down so much already, to elect a Democrat (and one whose programs are likely to increase taxes) may not be such a great idea. We'll see, it may be that the electorate are asking for more Govt. spending on social programs now, until they see what a mess the Democrats will make of the economy, and then they'll revert to a Republican. The irony is that in the UK the trend is the opposite, they'll blame Labor, and revert to the Conservatives!
There are three aspects. First, the fall in the price of gasoline (petrol). Since there is less money around, people are losing jobs and Banks are failing, so the demand for high-priced gasoline has greatly dropped. In order to keep up sales, OPEC, the oil cartel, has been forced to lower the price of a barrel of crude oil from a high of ca. $150 per barrel now down to ca. $65, less than half. Remember, that even though these prices seem exorbitant (a barrel used to cost $5) the actual value of a barrel of oil is only what the market will bear. The lowering of the cost of a barrel of oil has concomitantly reduced the price of gasoline at the pump from a high of nearly $5 a gallon in the US (its twice that in most of Europe) back to ca. $3 now.
In order to halt the slide in gasoline prices, some members of OPEC (including Saudi Arabia) have started to cut oil production. This is a typical response by a cartel to reduced product prices. But, there are enough members of OPEC and other oil producers that are hurting financially (because of cuts in sales as well as losses in their investments) that they won't be able to cut production without getting into severe financial difficulties, such as Russia, Nigeria and others. So cuts in oil production may not become a source of serious concern.
Among the countries that depend on selling oil is Iran. This means that the Iranian regime will be making half as much money on its crude oil sales. As a consequence they might not be able to support the tremendous costs of developing nuclear weapons, at the expense of food for their people. The economic situation in Iran is already so bad that this might help to tip the scales against their rapid development of nuclear weapons. Maybe that's why Ammedinejad is reported to be ill these days.
Another silver lining is the decreased value of the dollar. Here in Israel the dollar strengthened from last year when it was ca. 4.2 shekels to the dollar, down to 3.4 before the crisis hit in September. In the last two months it has risen to 3.8 to the dollar. So a weak dollar is an advantage for those of us who live on dollars, including those companies whose buying depend on the dollar exchange rate. This should have a world wide effect, especially when the Euro is hurting.
It is customary for the voting population to blame the party in power for any economic crisis, so that means the Republicans in the US and the Labor Party in England. I know it doesn't make much sense, but that is the usual case. However, in the US, the election of a Democrat usually presages a fall in the stock market, because the Republicans usually favor cutting Govt. spending and the Democrats usually increase it, with more extensive social programs. It could be argued that the electorate are subtle controllers of the economy, switching parties every few elections so that the average keeps the economy moderated. However, in this situation when the market is down so much already, to elect a Democrat (and one whose programs are likely to increase taxes) may not be such a great idea. We'll see, it may be that the electorate are asking for more Govt. spending on social programs now, until they see what a mess the Democrats will make of the economy, and then they'll revert to a Republican. The irony is that in the UK the trend is the opposite, they'll blame Labor, and revert to the Conservatives!
posted by Jack Cohen at 5:58 PM
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