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Wednesday, December 24, 2014

Twilight Of The Idol

There is nothing like a little volatility in the financial markets to make true-believers question their beliefs in the power of free markets. They switch from being stern and serious Jehovahs to some prancing golden calves that bear little resemblance to almighty gods at all.

The following article was posted December 15, when things were grim for markets, but I think it is very illustrative of some of the problems we face, one of which is that we don't really, really, really know what economic gods to believe in.

A number of things have already been mentioned here, but I never, ever made the incredible leap of neo-conservative-communist faith that the writer below had the audacity to make.
He has chutzpah.

The Fiscal Times
Why Big Oil Needs a Bailout in New OPEC Price War
By Anthony Mirhaydari,
December 15, 2014
Let's just admit it: We don't have a true free-market economy.

If we did, the market would set the price of money, with the supply and demand for credit setting interest rates rather than a handful of unelected bureaucrats at the Federal Reserve. If we did, politicians wouldn't dole out tax credits, subsidized loans, and generous government contracts to preferred industries and companies.

And if we did, we wouldn't have bailed Wall Street out of the mess it created during the housing bubble with nary a slap on the wrist — with some estimates putting the price tag at nearly $8 trillion — as their CEOs spent millions on bonuses and office redecorations in the midst of the downturn.

All of this meddling is justified, so we're told, in pursuit of that elusive state of economic nirvana: Full employment and low inflation...

I have to admire his trashing of everything, just to set things up. The logic is impeccably insane.
In fact, Deutsche Bank's David Bianco recently warned clients that as things stand now, the oil price collapse could result in a rare profit recession for the economy — something that hasn't been seen since 1998 and has been associated, historically, with an average stock market decline of nearly 17 percent. The 1998 pullback totaled more than 22 percent. To put that in perspective, a similar decline now would take the S&P 500 back to levels not seen since the summer of 2013. Profit recessions were also seen in 1967 and 1985-1986.
Wow! Say it ain't so, Tony!
So maybe it’s time to start thinking about another bailout. Outside of the economic justification for assistance to the energy industry — perhaps in the form of a federal tax holiday — there are also the foreign policy implications of the oil sheiks' cold-blooded attempt to bolster OPEC's market share at the expense of domestic U.S. producers. The government already provides billions in annual tax breaks to big oil, but continuing America's path to energy independence is worth something; it reduces our exposure to risks such as transit bottlenecks (such as Iran's presence in the Strait of Hormuz), vulnerable regimes (such as the West's intervention in Libya in 2011), and a repeat of OPEC's oil price shocks of the 1970s.

I know this is all pie-in-the-sky stuff given political realities and the impossible task of explaining to voters why cheaper gas could be a bad thing. But I wonder if by indulging in the short-term satisfaction of cheaper fill-ups we're inviting long-term pain down the road.
All that happened is that it took the markets some time to figure out whether cheap oil - good? or cheap oil - bad? That's where the volatility came from. The cheap-oil-goodniks seem to have prevailed.


I really dislike the ending paragraph.
It turns my stomach when one of these princes of finance bemoan the fact that "voters" have to be catered to, and why they have to explain why the "voters" should make the princes' investments iron-clad, while the voters themselves have to buy fields of chaff on windy days!!


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