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June 20, 2000
Rising oil prices have squelched the "soft landing" euphoria in the bond market.
Mortgage rates have risen almost a quarter percent this week, trading near 8.50% for the first time since May, as confidence in a hold-steady Fed is fading fast.
The economy has down-shifted, and probably in sustainable fashion. However, a soft landing to 3-4% GDP growth will not put the Fed on hold if it perceives an inflation problem driven by energy prices.
With apologies to Willie Nelson,
Momma, don't let your babies
Grow up to be Energy Secretary....
Secretary of Energy Bill Richardson, a good guy, a bright light, a good Congressman, ambassador to the UN, and Presidential timber, was offered this week as ritual sacrifice for the lost-and-found oops-a-daisy at Los Alamos. That was an inherited problem, of course, not his fault, but someone had to be blamed.
Fresh from that grilling in the Senate (Senator Robert Byrd, a fellow Democrat: "You will never again receive the support of the Senate for any other office."), Mr. Richardson's charred remains will next be offered at the altar of high gasoline prices.
Expensive gas has to be somebody's fault, right?
Tell the truth to gas-ragers in sports utility school buses? It's not a good idea to disturb their belief in a cheap-gas birthright. Instead, get the Federal Trade Commission to look for collusion among oil companies.
The FTC couldn't locate its behind with both hands and a mirror. Good show, though.
It would all be funny if it didn't matter so much to Alan Greenspan.
The oil price problem is on the demand side, not supply at OPEC. OPEC has increased production, and its members are cheating over quota. The world economy is in pretty good shape, and thirsty for crude.
Some say we've saved the bacon for Saudi Arabia, Kuwait, and Mexico, so they should pump up to pay us back. Well, where were you with price supports when oil fell to $10/bbl in 1998, and hurt OPEC economies vastly more than $35/bbl oil hurts us?
There are supply dislocations, but they are self-inflicted wounds: pipeline and refinery shortages, and poorly planned gasoline reformulation.
Our economy is much less dependent on oil than it used to be, but high oil prices are corrosive to the overall price structure. The damage seeps into the economy through higher prices for chemicals, and increased cost for anything or anybody moved by truck, rail, auto or airplane.
Everything.
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