by John M. Curtis
(310) 204-8700

Copyright August 14, 2005
All Rights Reserved.

oaring past $67 a barrel, Wall Street continues its unrelenting bidding war, pushing oil prices into the stratosphere and promising to tank the economy. Traders on the New York Mercantile Exchange [NYMEX] have no regard for the consumers or the U.S. economy: Their only mission is to sell more oil contracts and drive prices to new heights. Forget about consumers whose spending constitutes two-thirds of the nation's Gross Domestic Product, the sum total of economic activity driving the economy. President George W. Bush is right when he says he tax cuts helped save the economy from possible recession. But his passivity and lack of leadership on reining-in spiraling oil prices also can't pass unnoticed. It's not rocket science to figure out what happens when Wall Street runs amok with oil prices: It fuels inflation, punishes consumers, sabotages the stock market and eventually causes recession.

      Wall Street's publicity machine manufactures endless excuses justifying high oil prices, or, for that matter, any other commodity it sells. Today's excuses driving oil prices skyward are the threat of hurricanes in the Gulf of Mexico or Iran's decision to resume enriching uranium. Yesterday's excuses blamed China's insatiable appetite for oil or the Iraq War. Tomorrow's excuses involve problems at oil refineries or some other unforeseen domestic or global event. President Bush must do more than make more excuses or tout his new energy bill, promising more oil from Alaska's Natural Wildlife Refuge [ANWR]. Going to war in Iraq was suppose to help stabilize world oil supplies, yet since Cruise missiles hit Baghdad March 20, 2003, oil prices have more than doubled from $29.88 to over $66.86. Short of price controls, there's more Bush can do to rein in oil prices.

      Wall Street needs a good tongue-lashing from the nation's top cheerleader. If Bush can't tell traders that it's unpatriotic to bid oil prices into outer space, then Wall Street will continue its current feeding frenzy. Short of price controls, the least thing Bush can do is lecture Wall Street about national responsibility. Soaring earnings and profits since the Iraq War prove beyond any doubt that the oil industry has unduly benefited at the expense of consumers and, yes, U.S. troops. No other industry—including the defense sector—has witnessed such explosive earnings. While there's nothing wrong with greed, there's something inexcusable about manipulating petroleum markets at the expense of U.S. consumers and overall economy. It's not enough for Bush to sit idly by while soaring oil and pump prices fuel inflation, hurt the stock market and threaten the economy.

      Today's runaway oil prices parallel those in the early 1980s when the inflation-adjusted price per barrel exceeded $90. Yet inflation-adjusted numbers are misleading because the fraction of the family budget spent on gas today exceeds 1980. Low interest rates have sparked uncontrolled inflation in today's real estate market, pushing both mortgage payments and rents to unprecedented levels. Added to spiraling gas prices, American consumers are feeling squeezed. Without dramatic increases in real income, consumers will either have to belt-tighten or face eventual bankruptcy. Home equity lines have been bailing out homeowners, keeping the economy rolling. But with runaway gas prices, homeowners are already stretched to the breaking point, threatening the economy. High gas prices don't automatically force consumers to scale back work or recreational driving habits.

      Wall Street has pushed oil prices up $10 in just the last three weeks. If the trend holds, oil could exceed $100 per barrel by year's end. “This is a bubble that will have to burst at some point,” said Mike Fitzpatrick, an oil broker at Fimat USA in New York, assuming that supply would eventually eclipse demand. But with oil refineries going off line, with world events unstable and with the Organization of Petroleum Exporting Countries still manipulating prices, it's unlikely that supply will exceed demand. Publicly traded oil companies like Exxon-Mobil, Chevron, British Petroleum and Royal Dutch Shell have a vested interest in driving oil prices higher. Bush must temper his free market instincts with the reality that inflated oil prices cause inflation and could trigger a cruel recession. As long as Wall Street remains unchecked, oil prices will continue going off the map.

      President Bush must do more to rein-in Wall Street's unbridled propensity to set new records. Unchecked inflation in oil markets could have a catastrophic effect on stock market and overall economy. If petroleum prices keep rising, Federal Reserve Chairman Alan Greenspan will have no choice but to continue hiking interest rates. Pushing the Federal Funds Rate to 3.5% and the Prime to 6.5% probably won't slow down raging petroleum markets, fueling inflation across many sectors of the economy. With more rate hikes on the way, it's a matter of time before monetary policy hits the stock market. Instead of letting Greenspan wreak havoc, Bush should remind Wall Street to clean up its act. Petroleum traders either have to show more responsibility or face price controls, limiting the upward pressure on oil prices. Without some kind of controls, leaving it to Wall Street is just too risky.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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