As I'm preparing Part III in my series about the fraudulent nature of fractional reserve banking today, I thought I'd pause for a moment to acknowledge a singularly significant historical event that has occurred this year. We've seen gas and oil prices skyrocket to all-time highs well above previous highs, only to see them plummet a few months later to lows we haven't seen in five years.
There have been no significant changes in real demand or real supply for these commodities. Nor are there any expected changes in supply that would explain such a volatile market. Instead, what has happened is that the appearance and anticipation of future demand has changed dramatically, an appearance that has been fueled by rampant monetary inflation, followed by rampant monetary deflation.
Before the markets realized clearly that the fiat monetary and banking structures were in such serious trouble, they had bid up the price of oil and gasoline to record levels this past summer. Not only had the price of oil exceeded $100 a barrel for the first time in history, it had reached nearly $150 a barrel. Not only had the price of gasoline soared past $3.50 a gallon, it had raced past $4 a gallon as well, and $5 a gallon gasoline seemed likely.
Then, the financial crisis became manifest, and suddenly the entire market perception of energy usage changed dramatically. Oil prices have plummeted by well over 65% and show no sign of stopping, having fallen now below the $50 marker. Gasoline prices not only fell through the $3 range but also through the $2 range, and it is now selling below $2 a gallon. Neither of these price trends has shown us yet that they are done.
One of the most important aspects of a market economy is that supply and demand are driven in part by information that is conveyed by market pricing. When pricing misleads investment because of monetary manipulations, the economy suffers both on the way up and on the way down. None of the dramatic behavior we've seen this year would have happened without fiat money and Fed involvement. In a market as large and as global as the oil and gasoline markets are, there should be no room for wild, unbridled speculation to happen, yet it has happened, and it is likely to continue to happen. The reason it happened is the effect known as monetary inflation. Monetary inflation drives prices up well above normal market levels in the long run, and deflation drives prices down, often well below market levels. I can think of no way that anyone can rationally argue that this is good for the economy, good for the people of the world, good for anyone except perhaps for a few savvy market traders who know how to trade in exceptionally volatile markets. The only people who might be foolish enough to argue that this is behavior to be expected in a healthy economy are those who insist on being blind to the perils and fraudulent nature of fiat money, and even the vast majority of them have been smart enough to remain silent on the subject.
This discussion hasn't even touched on the wealth transfer effect of inflation and deflation, and that effect is extremely damaging. Yet, even without noting the detrimental effects of such transfers, the roller coaster ride that energy prices have ridden lately are clearly indicative of a sick and unbalanced marketplace. The cause of that imbalance: The Federal Reserve System.
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Published: Friday, November 21, 2008
Last modified: Friday, November 21, 2008
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Reader Comments:
Posted By: Master C
Date: 2008-11-21 10:04:21
Walt,
Boy, someone sure keeps beating that one-note DRUM, don't they? Well, it's no wampum from out of my teepee!
You might want to notice, though, that GLOBAL PRICES are changing, not just those having to do with the FEDERAL RESERVE. It's clearly not a MONETARY phenomenon causing the volatility as much as it might be political, economic, and even alternative fuel possibilities. If it were monetary, ALL prices would be behaving similarly!
You might also want to be aware that when you say: "In a market as large and as global as the oil and gasoline markets are, there should be no room for wild, unbridled speculation to happen, yet it has happened, and it is likely to continue to happen." that this kind of speculation happens EVERY DAY in MANY markets, and that the oil and gas markets are NOT an exception to the rule but are FOLLOWING the rule. VOLATILITY MAKES OPPORTUNITIES FOR FINANCIAL GAINS.
You believers in stable, steady, unchanging financial markets are like those who want calm waters on the seas. Calm waters are good for pleasure boaters, but for the SURFERS and the SAILORS, we like 'em tough and challenging! It keeps the wimps and the old-timers ON SHORE where they don't get in our way.
You've got to play the MARKETS, not play that one-note DRUM to get ahead.
Master C
Posted By: daddysteve
Date: 2008-11-21 15:21:49
I've talked to quite a few people with 401Ks and they don't strike me as wanting to be "surfers" and "sailors". C- don't you realize that your kind need to hide that corporatist attitude from the sheeple for things to continue on as they have in the past.
Posted By: MIke
Date: 2008-11-21 17:37:24
Thankfully, it is comments like yours, Master C, that give rise to newbies like me, who are still trying to understand what is going on with the financials, to look for people who seem to go to great lengths and often unpaid to explain these mechanisms in more detail. A short documentry i visited called "Banking Blow" and "Money as Debt" by Paul Grignon on youtube, i also thought were ones i could reliably use to explain things in a way that was a good starting point for my journey... I happen to in the end like the "non-fantastic" and "objective" explanations the most.....not the pushy and violent explanations....they work for me...i guesse i am not currently in it for the money, allthough i did change my superannuation policy which was paying 16% more recently to one that only pays 5% two months ago saving my superannuation skin as it were.....l think our australian "super" is called a 401K over in the states. Where i go from here, depends very much on what i read from objective sources that have verifyable information on the exact nature of the economy, which i hadn't even guessed at a few months ago..i knew nothing about "fractional reserve", and so now in hindsite consider that i was in complete ignorance. It has been a steep learning curve, when my initial starting point in all this stemmed from a basic instinct that asked me constantly since 1997, "how can an economy be run on debt ?" & "where does money come from?". Sites like this one in particular are imperative for me, and are a quiet place where i can study. I live in Australia.
Posted By: mike
Date: 2008-11-21 17:42:49
"SHEEPLE", daddy steve?.......LOL
Posted By: trd
Date: 2008-11-22 09:33:56
There was a massive transfer of wealth to those who knew how to play the oil markets this year. If I had the tools and the guts to forecast the markets, I could have bought call options on oil futures and profit substancially when it rose to $150 per barrel. Then I could have purchased put options and profit substancially on the way down to $50 per barrel. I could have made 10 times the money on the way up and 20 times the money on the way down for a total of 200 times the initial investment. $15,000 would have turned me into a multi-millionaire in just a few months. Of course if I played it incorrectly I could have lost the entire $15k.
Damn! I don't have the tools, knowledge and guts to hit the forecasts to predit the future. I could have made a ridiculous amount of money in the oil futures if could have predicted the future. I could have also lost all the money with the expirations of the calls and the puts. ...and if I was shorting instead of buying puts I could have even lost more than the invested amount even with automatic sells and margin call triggers. I could have invested $15k and lost $50k plus interests and more debt.
Too bad, I don't have a 'magic' crystal ball.
Posted By: Dirty
Date: 2008-11-23 00:50:20
Master C. wrote: "If it were monetary, ALL prices would be behaving similarly!"
This is not true. The effects of inflation and deflation in the money supply change prices in different industries at different times and change some prices more than others. Also, because of the nature of perfect and imperfect substitutes, some prices might go the opposite direction. I thought you were an economics instructor?
Speaking of playing the markets, how's that working out for you? Made millions yet?
Posted By: Master C
Date: 2008-11-23 11:04:44
Dirty,
For YOU to say that something is not true holds about as much water as a sieve. Anyone can make these one or two sentence generalizations and it's hard to tell them apart from others who make meaningful comments. The true test is to let us read something you've written and see how much sense you make.
Can't you put together 800 or 1,000 words and let us see what you have to say?
Master C
Posted By: Steven A. Rosile
Date: 2008-11-26 00:17:44
Hey C, yeah, its me again. I agree with Dirty. You seem to ignorant of basic economic concepts to have really been an economics professor.
Where did you get your PHD and where did you teach?