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Posted at 10:24 AM in Thoughts | Permalink | Comments (0) | TrackBack (0)
I was recently reading Jim Kunslter's blog? The most recent is about current events - the mess the world of business is in.... he writes about the Deflationists versus the Inflationists...
The use of dichotomies / dualism to structure discussion is useful but I am not sure that I agree with the two poles he has chosen... I think the two poles are: on the one side, those who see this as just another crisis, only the worse one to hit capitalism since 1929, and on the other, those who see this as something quite new and potentially, possibly (even likely), the end of the world as we know it.
I was reading that the cost of oil production in Russia is $80 US a barrel. It is around $70 even in Saudi and, if the accounts were done in Nigeria, around $90 there for the light crude. But future contracts are going at $40. One guy on the radio said that the EC (it was on the BBC) should agree with Russia to pay at least $75. Why? Because at $40 or less, the instability and the damage to future production was going to be really something very expensive. The bills may not come in for 12 to 18 months but the price could very well be around $200 a barrel as supply will then be half what is needed (around 30% less than what is available today etc). Take a look at Alberta - the roll back in production on the oil sands may save the environment, but it means that source of oil will not be developed...
What I read in this is that the 'market' is over. Not only was the market over hyped, it was not ever really there or if it was, it has now sunk under the weight of expectations... Sure the market forces would regulate commercial activities... just like the tooth fairy sets the price for baby teeth. So what happens when folks realize that just like there isn't a commodity market for oil, there isn't any 'market' for houses? What happens when people realize that they have spent their entire lives working to pay for something that has no value (because it cannot be sold or cannot be bought at anywhere near the former purchase price). There will be a lot of former free market guys wanted 'regulation' - they will want rules to protect their property!
So back to Kunslter's argument - whether the process is deflationary or inflationary won't matter as much as how the new 'pricing' mechanism is developed. And maybe it will be a form of private public partnership (at least initially) whereby the rich folks of the private sector work with the government to 'stabilize' things... (which of course means that they well try to ensure their privileged ownership status continues). My worry is that the middle class risks being destroyed in the process ... a large working 'middle' class is largely a post WWII event.
And on other topics - Kunstler's books are quite good reads... I just finished The World Made by Hand. I would recommend it...
Posted at 01:12 PM | Permalink | Comments (0) | TrackBack (0)