Sunday, Jul 08, 2007
Dollar dives as UK growth & inflationary pressures persist
Observer: Dollar takes a pounding from world interest rates
"Brent Crude was close to record highs, at $76 a barrel, and Kona Haque, commodities editor at the Economist Intelligence Unit, warned that cuts in oil supplies by the producers' cartel Opec would keep energy costs high. 'The market is actually in deficit,' she said. 'Supply is not meeting demand. We're looking at a tight market for the rest of this year.'"
- Supply diverging from demand is the very definition of peak oil. Are we there? Is OPEC reducing supplies involuntarily because Saudi Arabia's has peaked? That would amount to a structural shift in global inflation, resulting in elevated interest rates worldwide, most likely settling on or close to double didgets.
Posted by planning4acrash @ 01:56 AM (157 views) Add Comment
3 Comments
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1. uncle tom said...
Oil prices are moving close to their record highs without a critical supply issue to propel them. It follows that if something now goes badly wrong with the supply chain, the price will soar.
~~~
People living in the oil states, Japan and the developing world are owners of an awful lot of american and european government debt. For many of these people, it is probably becoming apparent that they stand to lose money if they keep these assets, as they are currently over-valued, and in most cases are in currencies that look set to fall against their own.
The big question now is how many will bale out, and what wil they transfer their money into?
We could well see a further surge in commodity prices, and a further collapse in bond prices. Together they will propel forward inflation AND interest rates at the same time.
We have got used to financial stability, and now regard a 0.25% interest rate rise as headline news. Instability is now on the horizon, which can lead to the need for much fiercer reaction.
It may not be quite as dramatic as the spring of 1988, when interest rates rose by 1.5% on successive months...
... but if the govt sticks with its inflation targetting policy, interest rates might well hit double figures.
2. paul said...
Yes, this principle is motivated by fear. When supply is extremely inelastic and signs grow that it will become even shorter (BTW this cannot happen to housing as the supply of houses is always increasing and never actually drops), fear can lead to a very rapid price spiral so that within a matter of minutes oil jumps to over $100 per barrel on the world market.
3. sold 2 rent 1 said...
"We could well see a further surge in commodity prices"
I agree that stronger commodity prices over the next 2-3 years looks likely but then they will fall back again.
Once the western economies stop borrowing and buying the goods produced in the emerging economies, the investment in factories/mines will drop off and the urbanisation of millions of farmers will stop as the emerging economies investment bubble bursts.
The developed worlds credit bubble will burst.
Then the developing worlds investment bubble will burst.
By 2012 we will see the biggest mania ever seen - gold.