Bubble, Bubble, Oil and Trouble

VDH has written yet another fantastic column - this time on the effects of high oil prices on world politics and why the world seems to be going to hell in a handbasket:

Here are three excerpts. The highlights are mine:

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"Take away the $300-500 billion in windfall profits piled up in the coffers of the oil-exporting nations recently, and Hugo Chavez becomes just another spluttering Castro, hardly able to pay for his bankrupt populism in Venezuela, much less export it beyond his borders.

Without petroleum largesse, Iran's Mohammed Ahmadinejad could afford neither a multi-billion-dollar nuclear weapons program nor costly subsidies for terrorist groups like Hezbollah and Hamas.

Vladimir Putin's crackdown on capitalists, political freedom, and further Russian reforms comes only because he controls energy exports vital to the world economy."

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"Foreign policy is warped as well...When poor oil-importing countries in Africa and Latin America make sacrifices to enact tough market reforms, their hard work only helps to enrich failed states like Iran, Libya, and Venezuela lucky enough to have an accidental resource beneath their feet that was found, exploited, and mostly purchased by the Westerners they demonize."

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And the grand finale:

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"Next time we whine that we cannot drill in the Arctic or off our coasts, that nuclear power is too dangerous, that government-encouraged conservation violates free enterprise, or that gasification from coal and shale is too costly, we should remember: there are insidious — and dangerous — costs in today's oil trade too."
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Brilliant.

We Are Relentless

The killing of Abu Musab al-Zarqawi in Iraq proved one thing about this United States administration.

It is not your 90's presidency.

In the past, terrorist leaders such as what's-his-name...oh yeah, Osama bin Laden, have stated that the United States is a paper tiger - bleed her, and she will run. They point to the Blackhawk Down incident in Somalia as proof of our weakness.

But they didn't count on a U.S. President who actually sticks to his guns and does what he says he's going to do.

They also didn't count on a U.S. military that is supported by its Commander-in-Chief and allowed to fulfill its mission.

Despite all the talk about how al-Zarqawi's death is irrelevant to crushing the insurgency in Iraq, it was a great victory. It proved that, with the proper leadership, the United States does not run, we will pursue our enemies, and, in the end, we will prevail.

Let that message ring loudly around the globe, to wherever Osama bin Laden cowers in the mountains of Pakistan, and to the new leader of al Qaeda in Iraq:

We are relentless and we are coming after you.

Hidden Inflation: It Will All Hit the Fan in 2007, Part 10

Alan Greenspan has received a lot of credit for taming the inflation bugaboo by masterfully manipulating interest rates using the power of the Federal Reserve.

But does he really deserve that much credit?

Let's examine two other factors that probably played a bigger role in controlling inflation over the past decade:

1) Access to dirt-cheap labor in China

and

2) The artificial link between the Chinese currency, the renminbi (RMB, also called the yuan), and the U.S. dollar.

First, let's tackle Item #1.

Under Greenspan's watch, the world seemingly experienced over a decade of economic growth with little inflation.

Usually, due to the scarcity of goods and labor, economic growth causes inflation in commodity prices and wages. It's a simple result of the relationship between supply and demand. There is a finite amount of resources and available labor, and economic growth increases the demand for resources and labor.

Here's how it works:

As the economy grows:

1) More jobs are created
2) More people are hired
3) The available pool of labor shrinks
4) The competition for labor/people increases
5) Wages go up
6) Inflation occurs

But that didn't happen during Greenspan's tenure. Why?

Due to the opening of China's markets, cheap Chinese labor has become available on the global market. Now, as the world economy grows, new jobs are shipped to China, at super-low prices.

There's a huge new pool of available labor to tap. That's an option that wasn't available 20 years ago.

Not only has cheap Chinese labor influenced the manufacturing sector, but with the easy transfer of information via the Internet, it has also influenced white-collar jobs such as engineering, computer programming, and telecommunications.

And we're not even counting the new pool of cheap, highly-educated labor available from India.

So how does Item #2, the link between the renminbi and the dollar, affect this situation?

Despite recent token moves towards a more market-driven policy, the Chinese government has fixed the exchange rate between their currency and the dollar at around 8-to-1.

As the U.S. dollar depreciates against other major currencies, U.S. goods become more price-competitive, and other country's goods become less attractive. But because of the renminbi-dollar link, Chinese goods become neither more or less attractive. Prices for Chinese goods and labor stay the same.

Thus, the prices for goods made in China don't go up. And a huge percentage of what's available in U.S. stores is made in China. If not for the artificial link between the renminbi and the dollar, prices for Chinese-made goods would be skyrocketing.

So there is inflation, but it's been hidden.

But it's not so hidden any more, is it?

We can therefore conclude that low inflation through the 1990s and early 2000s wasn't the result of Alan Greenspan's masterful control of interest rates. Instead, he was the beneficiary of a sea change in the world economy.

Perhaps Greenspan wasn't such a "Maestro" after all.

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Links to previous "It Will All Hit The Fan in 2007" posts:
Part 1, Part 2, Part 3, Part 4, Part 4 (Addendum), Part 5, Part 6, Part 7, Part 8, Part 9

Bush Shows His Green Side

President George W. Bush has created the largest ocean wildlife reserve in the world, protecting 140,000 square miles of ocean, islands, and reefs, by designating them a "national monument". The protected area is larger than all of the national parks in the United States combined.

I can't wait to see how Democrats and the media try to spin this negatively.

The Christian Science Monitor (linked above) does a good job presenting a balanced article.

However, they can't resist adding the following:

"Several analysts add that, in some respects, the move is a political no-brainer for the White House."

But the article also adds:

"'This is just amazing,'says Ellen Athas, ecosystems-protection director for the Ocean Conservancy in Washington, who served on the president's Council on Environmental Quality under Bill Clinton. 'This is an important first step in protecting some of the world's healthiest reefs for future generations.'"

and

"'This is an extraordinary act for any sitting president,' enthuses Joshua Reichert, director of policy initiatives and the environment program for the Pew Charitable Trust."

Good job, W. This environmentally-conscious Republican salutes you!

A New Diplomatic Tool

Maybe this is how we should solve the nuclear problem in Iran, or the Israeli/Palestinian conflict.