Crude oil has fallen by 7% as traders that were certain Goldman Sachs had the market fixed and that $150/barrel oil was a certainty have taken a bath in their own blood. Short sellers (those who bet the market will go down) have been cleaning up as the price falls. Short selling wasn’t the smart bet so those contracts would have been available cheap.
If the smart money moves to a short position because Obama has promised to continue pressure on the market then you could see the price continue to fall. Saudi Arabia would like to see $70 oil, but once a good old fashioned market crash gets going there is no bottom. Not that you need to cry for the oil producers, most oil will pump from the well for under $20 a barrel and $30 will get oil from the most stubborn well so they’ve been cleaning up for almost ten years and long term there is always money to be made in oil.
When Bush came into office the price was $18/barrel and he ran it up to Bin Laden’s demanded price of $140/barrel, but that only lasted until Bush crashed the economy. Now the man Bush “couldn’t find” is dead and the President who killed him is driving the price of oil down.
The CBO estimates that if absolutely nothing is done by Congress which would mean that the current Obama budget is maintained and all the Bush tax cuts simply expire after two years, the CBO estimates that by January 2017 the government will start to run a surplus. The one fly in that ointment is that this scenario would also allow the full implementation of the Alternative Minimum Tax originally put in place in the sixties to force millionaires to pay taxes and not dodge them completely with exemptions and deductions.
This concept has been completely perverted by the Republicans since then as millionaires and now billionaires don’t pay the alterative minimum tax on very much of their income but the upper middle class does. Because it’s not indexed to inflation the tax threshold would now intrude on ordinary middleclass workers without the series of annual raises of the threshold that the Republicans have allowed only after extorting concessions from Democrats.
So the apparent reason that Republicans have walked out of debt ceiling talks is that Obama is bargaining from a position of strength and doesn’t need to accept any spending cuts. Mere inaction by Congress will allow Obama to campaign on the promise of a balanced budget. Then the question is are the Republicans ready to default on the debt? Their Wall Street masters won’t be very happy if they do. Since Wall Street doesn’t care who is in power as long they keep getting rich the Republicans are screwed. Will Republicans give in or risk a complete meltdown? A meltdown could play into Obama’s hands as well. The modest financial reforms that were passed when Democrats were in control of Congress gives Obama the authority to do away with much of Wall Street if they really get into trouble from such Republican intransigence. To the surprise of almost everyone Obama does seem to be playing chess. www.prairie2.com