A second look at Big oil, and Iraq

Don't leave Iraq just yet. For a long time i've been saying "Get out of Iraq now!" "No timetable" But... I know that in combination to the upcoming financial crisis, the U.S dollar just might not make it. And so I begin...


If you think we are in the Middle East solely because Bush wants to line the pockets of this oil buddies... then you are sadly mistaken.
Although it probably does have an influence... it isn't the main demand.

The unique thing about oil is the demand for oil is inelastic which means when the price of oil goes up, the demand doesn't fall much, mostly due to the fact that everyone drives and no one is really going to give up driving. The gross revenue oil producers receive is Quantity x Price. So if the oil producer pumps out 6million barrels of oil the price of oil will be $50 a barrel and thus he has made 300 million dollars. BUT! If he cuts production to 4million barrels the price will rise to $90 dollars a barrel, earning him 360 million. Therefore oil producer makes more when he produces less. That is if he is alone, but the problem is he has competition. And no oil producing country is big enough to be price makers, they are all price takers. And if you are a price taker the best thing you can do is produce and much oil as possible because you have no control over the price.

But if oil companies all get together and agree to limit production they can jack up the price of oil and make more money. Why? Because the demand for oil is inelastic. That is what Opec is, a cartel to get oil-producing counties to limit production thus raising prices.

So Bush invaded Iraq to limit production and raise oil prices to line the pockets of his oil buddies? Maybe an extra bonus. But is just another example of government intervention in markets.

The main reason we are in the Middle East is that the fate of the dollar is tied to oil. Now everyone knows that the U.S runs two big deficits… A trade deficit and a budget deficit. Normally trade deficits work themselves out, when a country like the US runs a trade deficit, it pays for it with inflation. Our currency falls. Another country sees the good exchange rate and buys a bunch of American goods. Thus canceling out the deficit and restoring the dollar. And we are back to square one. But… that's not happening. And the reason it is not happening is because everyone still wants dollars, and the reason is oil. That is because the big oil producing nations only trade in dollars. So if a country wants oil… Which can be shortened to "If a country". Then you had to or have to have plenty of dollars around. This means that despite two huge deficits the U.S is running, the dollar is still prized for its ability to get oil. (Believe it or not but this is the short explanation)

Budget deficit also add to inflation because budget deficits have the same effect as printing money. Because when a government runs a deficit it issues a bond. And this bond pays back more than what the bondholder put in. That payback comes from taxes or just printing money(IE lowering the interest rates) But when the bond expires there will be more money floating around than there were before. Causing more inflation. The main reasons for the budget deficits are the 3 main welfare programs.

Medicare/caid - $673 Billion
Social Secutiy - $586 Billion
Income Security(Welfare checks) - $367 Billion

Defense - $ 527 Billion

Everything else - $661 Billion


As Ron Paul has said… We are living beyond our means.

Now… Right before the Iraq invasion, Iraq switched from selling oil in dollars to selling oil in euro. If oil producing countries follow that trend then the effect would destroy the dollar's special traits and put it on an level playing field with other currencies. Once this happens the true value would be shown. This will completely destroy the dollar and we will see the kind of hyperinflation the Germans had after WW1. So at this moment, the life of the petrol dollar is the life of the States. How do we fix this? Well we can't stay in Iraq forever because even that is adding to the deficit now. So we have to drastically cut spending. And when I say cut spending, I mean drastically cut government. While at the same time, SLOWLY pulling out of Iraq.

I might be one of the few people to be happy about the higher gas prices due to less production in Iraq. No, im not joking. I'm happy. That is because the dollar, and America's future rests all on oil. And the less oil on the market, the longer the U.S Economy can survive...

Basicly...

We are stuck with trying to get around the "Inflation Bomb"

If we stay there, the budget deficet rises along with inflation. Then time will run out on the bomb and we all go boom...

If we leave all at once and Iraqi oil goes on the market tommarow, then the Dollar drops flat as a rock and once again, Boom... The inflation bomb...

Sadly... I think the time has already run out on us and it is too late to disarm the bomb... We haven't curbed spending, and the Petrol dollar before the crisis and I think we are about to pay for it.

The major problum now is that many more countries are switching from the U.S Dollar to another currency...

The higher gas prices we are seeing right now are only due to inflation of the U.S dollar due to Oil countries basicly telling the U.S dollar to "Go to hell" The bad thing is, Pandora's box is now open... The American dollar's bubble is now burst, and I expect Economic disaster soon... I figure that 4 dollar gas will be an indicater to store up supplies.