Commentators are focused on the risk countries will respond to the worldwide slump in demand by resorting to protectionist measures (either competitive devaluations, tariff rises or other trade barriers) in a mutually self-defeating attempt to reserve what remains of shrinking demand for domestic industries — leading to trade wars, a reversal in the trend towards global integration and a fall in living standards.
The Great Debate
Most successful elected leaders must disappoint their most ardent supporters at some point, as the bright hopes of an election campaign give way to the complex realities and constraints of governing, and need to occupy and retain the political center-ground to win re-election.
The record differential between the front-month and more liquid second-month contracts at expiry last week once again raised pointed questions about whether the NYMEX light sweet contract is serving as a good benchmark for the global oil market, or sending misleading signals about the state of supply and demand.
Like the sorcerer’s apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control.
After six decades of uninterrupted credit creation and an unprecedented era of consumption and prosperity, the credit process has come to an abrupt halt. If credit has been the locomotive of the modern economy, the third quarter of 2008 marked the point when the engine stalled and the economy began to roll back down the hill.
In the 1902 novel “Brewster’s Millions“, the eponymous hero is challenged to spend every cent of his $1 million inherited fortune to win an even larger inheritance of $7 million. Brewster has a year to do it, and under the terms of the will he must obtain good value for the money.
China’s decision to link domestic fuel prices indirectly to the international crude oil market, subject to a price cap, while hiking the consumption tax on gasoline and diesel and phasing out a variety of road tolls and other fees shows Saudi Arabia’s worst fears about high prices and demand destruction are starting to come true.
Perhaps the most surprising development over the last three months has been the surging value of the currency at the heart of the crisis. It is almost as if investors have responded to a fire alarm by running towards the source of the fire.
U.S. oil refiners have relied heavily on exporting surplus gasoline and especially distillates to help offset plunging domestic demand over the last eighteen months.
Even by the standards of a deep-cyclical industry, the “golden age” of oil refining has proved remarkably brief, lasting no more than three years, before giving way to a new dark age.