OIL: Speculators – or Supply and Demand?

If supply is solid and demand is solid, how can it be that oil prices are skyrocketing?

President Obama offered his thought recently, explaining that “we [speculators] think that maybe there's a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we're going to bet that oil is going to go up real high. And that spikes up prices significantly."  He even announced a special “commission” to investigate and root out oil speculators.
Is Obama right about speculators being the cause of high gas prices, and that supply and demand are balanced (as he also stated)? Let’s take a closer look:

The above  two charts from the International Energy Agency’s latest report show quite clearly that world oil demand is currently outstripping world oil supply. And it will get worse over the near term.
If countries cannot get oil at good prices, their economies begin to suffer. Prices of everything go up. With Fed Chairman Ben Bernanke’s loose money Quantitative Easing policy, printing endless dollars, and the dollar declining rapidly against a basket of global currencies, this hits us right in the pocketbook. The official currency of OPEC is the US Dollar. Since we currently import 70% of our oil (not long ago we only imported 39%) , we must pay for the bulk of it with dollars that have been artificially debased, further increasing the cost.
Speculators have “some” effect on oil prices, but it is mainly to exacerbate price swings in either direction. Without a fundamental supply-demand dynamic, speculators have nothing to do. The fact should not be lost, either, that speculators are NOT buying physical oil - only commodity futures for later delivery.

So as you drive your gas-guzzling SUV to the pump this summer to fill up with $6.00 / gal gasoline, remember to thank President Obama, who has put a virtual hold on domestic drilling, and Mr. Bernanke, whose Keynesian money policies have debased our currency to the point where we cannot even affford to import the oil we no longer produce at home.


Does Raising Taxes Help the Deficit?

Current wisdom in Washington is that we need to raise taxes (particularly on “the rich”).  Here’s why it won’t work. President Obama’s deficit policy speech today emphasized that if government spending breaches a trigger level, tax increases should be triggered. He has it 100 percent backwards. I’ll explain.

We have a current tax policy that taxes higher income people more as a percentage of their income than those in lower income brackets. This is true even if you look at all Federal taxes, not just income taxes. 

The following chart, based on data from the liberal-leaning Tax Policy Center, makes this clear:


It can be seen that the highest earning group, at $212,666 and up, pays 40.3% of all Federal taxes, while the middle group (from $35,347 to $64,490 income) pays less than one quarter of that, at 10% of all Federal Taxes. These are facts, they don’t lie. But somehow the current Administration seems to think that higher income earners aren’t paying enough. In actual fact, the highest income earners pay over four times what the middle income bracket pays.

In this debate it is important to make sure you are not confusing tax rates with tax revenues or the actual dollars raised by a given tax. To the average progressive liberal, making the rich "pay more" sounds wonderful. It's just that it simply doesn't work.


As can be seen from the above graphic from the Heritage Foundation, we have not had tax revenues of more than 20% of GDP for any length of time since at least 1960. This is true even though we have had much higher tax rates in earlier years.  We once had a marginal rate of 91%. But despite higher tax rates, tax revenues still tended to trend around the level of 18% of GDP. The long-term average for actual tax revenues is 18% to 20% of GDP, regardless of current tax rates.

When you raise tax rates, investors and taxpayers change their behavior.  When capital gains tax rates go up, investors slow down realization of gains. So, despite a higher capital gains tax rate, the actual revenue received from capital gains taxes may not go up. Our current convoluted, ridiculous tax code similarly provides loopholes for those whose marginal tax rates have been arbitrarily raised.

Tax revenues have been remarkably steady at about 18-20% of GDP for 60 years even though the highest tax rates during the period fluctuated from a high of 91% to a low of just under 30%. 

The bottom line is, tax rates could never be increased high enough to close the budget deficit. The only common sense answer that will work is to reduce spending. Fortunately, there are some people in Congress who now understand this – but not enough!

While we’re at it – lets examine just who pays taxes in the US: 47% of filers pay NO FEDERAL INCOME TAX at all! That’s right. The top 1% of filers pay 38% of all tax revenue. And the top 5% of tax filers pay 60% of all tax revenue to the government. Do you really think we need raise taxes? I say, “Bullshit!”. Let’s get real, and deal with facts, figures and arithmetic for a change.

Kurt Brouwer who blogs for MarketWatch and the Wall Street Journal, has much more about this and related subjects on his blog.


Subway to Nowhere

You climb the stairs
Looking for a sign
That will tell you
where to go
But you never find it

You retrace your steps
And realize it's cold
and you've left your jacket
And now you cannot go back
Because you don't know where

You come into a station
People mill about
A train comes screeching
around an impossible curve
the last car is blown open
like shrapnel from a bomb
You turn away
This is not the train
And no one gets on

You were looking for
The art museum
Somewhere in your mind
you know how to walk there
but now you're lost
You cannot go forward
You cannot go back

You stare into someone's face
And realize it is an old friend
from high school
But you ask his name and
he says something unintelligible

You are dreaming and
Awake in the dream
familiar subway sounds
Welcome to the subway to nowhere