Off the Record

OPEC is trying to play the Oil market, and it will cost them and the World economy. The Oil price is economically controversial, but almost all economists would agree that much of the price of Oil is based upon Speculation; the real Problem generated by the automated Buy orders of the major Funds. I have an even more controversial model (it is in my head, and it will stay there), which suggests that fiscal policy measures will not impact the economy, if Oil stays above a relatively low $81/barrel market price; notice I did not say Contract price. Other Economists who might like to follow the puzzle I outline should introduce the average amount of Oil (in evaluated Dollars) per unit of Production as an equal component to the finance Cost per unit. The non-variance cost equality must be proven to be economically sound to be economically correct, but a practical reality will suggest that the variance could not exceed 9%, about the exact difference between Market and Contract price for Oil over the next Contract session. The key element here states fiscal policy means nothing, if Production Costs increase faster than the removed financial charges.

The Question is whether Production Costs are increasing faster than the financial charges removals? The Answer seems somewhat obvious, and indicative that increased Production will not be profitable. Here is where the listed elements run across competitive factors. Increased Production will not pay for itself, Consumption will fall against an increased Price-forward movement, and Speculation-fed Commodity Prices will increase under advanced Production, or even continued levels of Production. The Dollar will fall against other Currencies if fiscal policy initiatives are adopted, as other Currencies attempt to hold their position on Production Costs. Current Projections only express that fiscal policy will not generate economic activity, but will erode the Dollar severely; putting at Risk a whole range of Production and Consumption schedules. There is a Point where fiscal policy becomes the enemy of economic performance.

My Solution for economic fuel would work in opposite fashion. I call for an immediate return of Fed interest rates to 4.2%, the immediate Repeal of the Bush Tax Cuts, and a 2% Tax on all Government Supply Contracts payments coupled with a 60-Day delay of Contract performance. The later may not be understood by the Reader, but I will state it will cause a reduction of non-economic, off-the-board Government expenditures. Government is not the End-Consumer who We wish to stimulate. We will have immediately reversed the shrinkage of Tax revenues, eliminated the Tax measures which have turned into the negative column of economic stimulation, and reduced Government Supply Costs closer to normalized Business Production Cost levels. The Dollar will rebound against other Currencies, and Import Costs will reduce; in a framework where domestic production will become more profitable. Will it Work? All I know is that what We are doing is not Working! lgl