Asia Times: Monetary folly oils oil gains

Monetary folly oils oil gains
By Hossein Askari and Noureddine Krichene


Oil prices are again up and running. Are they heading up to the July 2008 level of US$147 per barrel, or even higher? Will higher oil prices again squash world economic growth?

With interest rates at or near zero, the London Interbank Offered Rate (Libor) at its lowest rate since its inception, unlimited money supply, and the US dollar declining, there has never been a more propitious environment for speculation on oil, food, gold and other commodities.

If an investor is holding a one-month US Treasury bill in May 2009, his return is a ridiculous 0.134% per year, or 0.01% per month, and largely negative in real terms. If he is holding a crude oil futures contract, his return would have been 38% during April 20-May 20, 2009. Noting that the borrowing cost for margin requirement is less than 1% a year, or less than 0.08% a month, a speculator would have gained on a self-financing strategy 37.92% per month on oil contracts. Such a free bonanza will only fire up commodity speculation as never before.

Conditions for propelling oil prices to disruptive levels are today firmly in place. Besides cheap money as called for in the Group of 20 London summit in April, fiscal policy has never been as loose as it is today. Gigantic fiscal stimuli that include President Barack Obama's US$787 billion package, a US budget deficit of $1.85 trillion, the G-20 stimuli of $5 trillion, and world wide fiscal expansion, combined with renewed lending to developing countries, will boost demand for oil as well as for other commodities. ...........(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/KE28Dj05.html

the rich can afford all the oil they can use up and the serfs will just have to suffer the high prices.

Once again, another transfer of money from the masses of poor into the pockets of the few rich, and there ain't nothing we can do about it.

Its all about returns.

Compulsive gamblers never want to get up from the table, and in this case the game is rigged.