In this issue:

Crude Oil Price Hits All-Time High

Euro Economists Warn vs. Greenspan Bubble Economics


From Volume 3, Issue Number 20 of Electronic Intelligence Weekly, Published May 18, 2004

World Economic News

Crude Oil Price Hits All-Time High

The price of U.S. light oil future contracts for June delivery closed at $40.77 on the New York Mercantile Exchange (NYMEX), an increase of 71 cents on the day May 12, and the highest closing price on the NYMEX. Shortly after Iraq invaded Kuwait, on one day in October 1990, the price of U.S. light crude futures reached $41.15 during inter-day trading, but closed lower than on May 12. In London, the price of the slightly lower-grade Brent oil futures contracts closed at $37.95 on the International Petroleum Exchange (IPE).

At a May 11 press conference in Little Rock, Ark., Lyndon LaRouche observed, "A catastrophe in the Middle East could set the price of oil at $50 a barrel and cause a shock effect to the economy." Less than 24 hours later, Barclays Capital oil market analyst Kevin Norrish told Agence France Presse, "[Oil] prices could go higher still, and $50 a barrel is possible should the wrong kind of headlines emerge from the Middle East." The chief of the International Energy Agency, Claude Mandil, warned: "A new oil shock—that is to say prices which climb in coming weeks to the point of compromising global economic recovery—is possible."

While some in the financial press have argued that no matter how high the price of oil goes, it will not produce a shock effect, others are beginning to read the writing on the wall: Prof. Andrew Oswald of England's Warick University observed, "Lots of people think somehow we're less dependent on oil than a few decades ago, but all the evidence shows that's wrong." He added, "when the price of petroleum shoots up, that really hurts output and pushes up unemployment."

Euro Economists Warn vs. Greenspan Bubble Economics

In his column May 10, London Guardian economics editor Larry Elliott quoted former Dresdner Bank chief economist Kurt Richebaecher's warning against Greenspan's bubble economics, adding that there is "much worse to come." It could be, Elliott wrote, "that Greenspan believes the U.S. economic recovery is much less robust than the public has been led to believe, and that withdrawing monetary stimulus could bring the house of cards down. This is not a message much heard in the U.S. (where the predominant voice is that of Wall Street economists who have a vested interest in talking up the stock market) but it is true that Greenspan solved the problems caused by the collapse of the bubble in the stock market by creating two new bubbles—in the housing and bond markets.

"Economist Kurt Richebaecher puts it this way: 'The stock market bubble of the 1920s ended with an unprecedented consumption boom, and just that has been happening again since 1997, and in particular since 2001. Since then, consumer spending has accounted for 92% of GDP growth. Yet, to keep it rising in the face of grossly lacking income growth, the Fed has invented a policy stance that has no precedent in history: boosting home prices with artificially low interest rates in order to provide rapidly growing collateral for consumer borrowing.'

"Richebaecher's view is that Greenspan has papered over the 'existing maladjustments from the boom through even bigger, new bubbles and macroeconomic maladjustments, heralding much worse to come in the future.' The key question is what happens once policymakers try to wean the U.S. off its growth drugs.... Raising interest rates would pull the rug from under the housing market, while if the Fed's negligent approach allows inflation to pick up over the coming months watch out for a crash in the bond market. Even the tiniest threat of higher short-term rates spooked Wall Street last week: it's not hard to imagine what some aggressive tightening would do, particularly if it looked as though the Fed was struggling to catch up."

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