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After a brief flirtation with private investment in the oil sector, Beijing has started cracking down on independent players in the field. In one of the most flagrant examples, the government has ordered the seizure of thousands of private oil wells in northwest China as part of an environmental cleanup and overhaul of the industry.
Strong demand for energy from the Chinese economy has pushed up world oil prices. The latest forecasts from the State Reform and Development Commission say China will continue to face prolonged power shortages this winter.
Shaanxi's small re-nationalization mirrors a much bigger battle fought in neighboring Russia by the Kremlin to regain a state foothold, also in strategic oil reserves. The year-long legal onslaught on Russian oil giant Yukos has enlightened Beijing on the political and economic hazards of divesting the state of strategic energy resources.
The country's first interest rates rise in nine years, announced Thursday, contrasted sharply with the well-signaled, steady rises that are happening in more developed economies, and the move caused financial markets around the world to sit up and take notice.
Chinese officials and most analysts, however, said the rate rise was intended simply to cool inflation and had nothing to do with any plans to revalue China's currency.
Of more long-term significance than the rise in benchmark interest rates was the simultaneous announcement that the PBOC had raised the restrictive ceiling on lending rates. Banks can now charge up to nearly 14% per annum on loans. source
Some of the industry’s most informed participants believe there is little that can be done to increase worldwide oil production. Earlier this year, British Petroleum announced that it will be returning to shareholders all cash flow it receives in excess of $25US per barrel. For every dollar the company receives in excess of $25US per barrel, BP will adjust its dividend or increase its share buyback program to return the cash flow to shareholders. BP has essentially given up its efforts to increase production or even keep production flat. Instead, the company has chosen to give shareholders back their capital with interest.
Already, the U.S. is exhibiting many of the pre-hyperinflationary conditions that are so prevalent in many South American and Eurasian economies. Evidence points to several factors that will lead us there:
- Large budget deficits
- Deteriorating international trade balances
- An eroding international currency
- Eroding financial confidence
- Growing protectionism
- An expanding war on terrorism and the need for security
- Growing entitlements
Whether the U.S. experiences hyperinflation or simply higher inflation rates will be dependent on the political will of its leaders to rein in spending and bring its fiscal imbalances into order. At this point, it appears hopeless with over $51 trillion in unfunded Social Security, Medicare, and pension liabilities now growing at over $2 trillion a year. History teaches us that debt imbalances of this magnitude are always inflated away.
We are now at an historic inflection point in history—with no turning back the clocks. Had our political leaders from Reagan and Clinton to Bush I and II been more fiscally responsible, we wouldn’t be facing the largest monetary storm in history. That monetary storm lies directly in front of us. Bernanke and Greenspan may summarily dismiss high oil prices, but for most of us who live in the real world, higher energy costs are going to be inflationary. Investors need to start preparing for $100 oil. Higher oil prices will eventually permeate all aspects of economic life, driving the costs of basic necessities higher. In the future you may be able to buy a flat screen TV, DVD player or personal computer at a cheaper price, but the cost of everything else will be rising. The things that you need in everyday life will all be going up: your grocery bill, your utilities, the gasoline that powers your car, visits to your doctor or dentists, tuition, and lastly, taxes.
The economy will vacillate between periods of deflation and inflation, with each recession bringing forth a temporary reprieve from what will be an inexorable rise in the general rate of inflation. Eventually wars, deficit spending, a rising mountain of debt, and peak oil will lead towards hyperinflation in the United States.
Originally posted by cryptorsa1001
Check out the October 23 2nd hour broadcast at www.netcastdaily.com...
What to Expect as the World Runs Out of Cheap Oil
Originally posted by Gools - posted on 10/20/2004
... but it's not the whole deck of cards just yet.
I think that will come after the election and the price of gas is allowed to rise. After all, the oil companies want to keep their people in the White House, so the price of gas is cheap in relative terms. The oil companies are making enough profit from the higher oil prices to give a cut to the consumers in lower gas prices. Whether or not Bush wins they'll put the squeeze on. They have to: demand is outpacing supply.
The inflation trigger?
Originally posted by Gools - posted on 11/8/2004
Four more years of Bush and the markets react.
Watch the debt climb.