08-28-09 by dugan
Did you hear the one about how the Bush administration used the wrong calculations last year when it declared that it wasn’t financial speculation causing the huge oil spike price? It’s one of many newsworthy punchlines of a strong new study that describes how government handed our energy markets over to corporate speculators, with economy-wrecking consequences–possibly including destruction of the dollar. And it’s up to government to fix it.
The study from the James A. Baker Institute at Houston’s Rice University is no liberal shill. But it comes to the conclusion that critics of energy market deregulation, including OilWatchdog, have been right for years. The investment banks, their paid analysts and the Bush administration–who scoffed that prices were set by supply and demand–were deliberately, destructively wrong.
The study also concludes, alarmingly, that speculative energy markets, and the resulting price spikes, are doing direct damage to the U.S. dollar.
About that Bush administration study, (recently disavowed by Obama White House regulators), the Baker Institute analysts conclude that the analytical model used by its regulators failed to take into account the burgeoning role of pure speculation in energy markets. The study also:
- Pins the spike in speculation, shooting from 20% of trading to 50% since 2002, to the 2000 deregulation of energy markets that opened the Enron Loophole–a gift to the crooks of Enron and their CEO, Kenneth Lay;
- Faults the Bush administration and other governments for continuing to buy oil for government reserves even as the price of oil spiked over $100, saying:
"[T]his allowed speculators to confidently expand their exposure in oil market futures exchanges without fear of repercussions and revenue lossesfrom a surprise release of U.S. or IEA strategic energy stocks."
- Notes the resumption of rising prices and volatility in oil markets, and the danger of more economic damage if no action is taken;
- And, most alarmingly, sees the risk of a destructive downward spiral in the value of the dollar because the rise of speculation has created a stranglehold link between the falling dollar and the rising price of oil:
The threat to U.S. economic health and national security is that the dollar risks getting caught in a vicious cycle where continually rising oil prices feed the U.S. trade deficit, leading to increased U.S. indebtedness and thereby an even weaker dollar, which further drives the price of oil higher.
This conclusion is so strong, and so alarming, that it’s hard to see any path for Congress and regulators except a complete undoing of corporate-demanded deregulation. But the billions of campaign and lobbying dollars poured into self-protection by the financial industry could still prove me wrong.