by John M. Curtis
(310) 204-8700

Copyright Octorber 30, 2007
All Rights Reserved.

itting a new intraday high Oct. 26, crude oil broke yet another record rising to $93.53 on the New York Mercantile Exchange, where dispassionate specialists bid futures into the stratosphere. There's no compunction about extracting the lifeblood of the Western civilization, hurting consumer confidence, causing runaway inflation and pushing the economy into recession. Meeting at the Federal Reserve Board's Open Market Committee, Chairman Ben S. Bernanke must make a fateful decision, capitulating to Wall Street and lowering interest rates or holding steady and preserving the U.S. dollar. Bernanke knows that you can't fight inflation by reducing the value of the dollar, dropping to record lows against the euro and British pound. No matter how loudly Wall Street whines, the Fed can't afford to sacrifice the dollar at the expense of greedy traders locking-in profits.

      Some oil analysts now believe that crude oil will hit $100 per barrel before New Years, without a major calamity like a hurricane, terrorist attack or new military adventure. Wall Street's spin machine wants the public to believe that extraneous factors, like the prospects of war with Iran, Turks vs. Kurds and insatiable demand in China and India, drive the price of oil. In reality, specialists on the NYMEX carefully plot strategy, issue strategic press releases and create the perfect storm to bid oil prices into outer space. “Every new bullish factor pushes U.S. crude irrationally closer to $100 barrel,” French investment bank Societe General said in an ominous commentary. Without some type of price controls on crude oil, the economy could be pushed over the precipice. President George W. Bush has given the oil industry the green light to fleece consumers and torpedo the U.S. economy.

      Runaway oil prices have more to do with Wall Street than extraneous factors around the globe. Saber-rattling about bombing Iran doesn't help the price of oil, giving Wall Street the news needed to hike prices. Bush needs to take a more active role warning oil companies that he won't tolerate record profits while the rest of the country suffers with inflated pump prices. Over the past several months, pump prices remained stable while oil prices went through the roof, proving, if nothing else, that there's little link between oil prices and pump prices. Pump prices have now started to jump as gasoline inventories began shrinking. Instead of making more gasoline, U.S. refineries have taken production off-line, deliberately shrinking inventories to cause the current round of price hikes. Unless there's some public or government action prices will spiral out-of-control.

      Fed Chairman Bernanke has no direct control over commodity prices, like the price of oil or gasoline, but he can talk about the pernicious effect of runaway oil and pump prices. No economy can control inflation while energy prices are driven to unprecedented levels. While food and energy prices don't factor into the Fed's gauge of core inflation, in point of fact both exert a direct hit. Runaway energy prices fuel wholesale inflation by raising the price of transportation and landed goods. No sector of the economy escapes the adverse effect of high fuel costs. Bernanke can't stop a slide in the U.S. dollar without controlling runaway energy prices—a major factor driving inflation. “I looks like everyone wants to sell the dollar and buy other assets, whatever assets whether equities or commodities,” said Christoph Eibl, head of trading at Tiberius Asset Management.

      Lowering interest rates will continue to create a liquidity crunch by driving foreign investors out of U.S. treasuries. With European central banks keeping interest rates high, Bernanke can't continue to drop U.S. rates without catastrophic effect on the dollar. While a lowered dollar helps exports, it fuels inflation and kills the overall economy by raising the prices of all other goods. “We don't think the economy's about to slip into recession. The corporate portion of the economy is still in pretty good shape,” said Phil Orlando, blowing more Wall Street smoke. Bernanke doesn't slash rates unless he's preventing a slowdown to avoid recession. Wall Street craves lower rates because it drives more capital into equities from fixed-income securities. Bernanke finds the economy at the tipping point where lowering rates fuels more inflation and further harms the dollar.

      Bush should immediately summit with the oil executives to let them know record profits can't be at the expense of the U.S. economy. Wall Street specialists must be reined-in to prevent today's spiraling oil and gasoline prices. No amount of terrorism, tensions in Iraq, consumption in India or China or storms in the Caribbean can stop Wall Street traders hell-bent on pushing oil prices to new highs. It doesn't matter how much oil Opec pumps if Wall Street is left unchecked, driving prices to unprecedented territory. “I personally don't believe we well see prices at $100 a barrel but it is not impossible given situation,” said David Moore, a commodity strategist at the Commonwealth Bank of Australia. What Moore refers as the “situation” is not world events but the structure of Wall Street that delivers profits to publicly traded corporations at the expense of consumers and the economy.

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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