Friday, June 24, 2011

Short selling on Republican futures

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.


John said...


Please explain how mere "MODEST financial reforms that were passed when Democrats were in control of Congress" can possibly give "Obama the authority to do away with MUCH of Wall Street." Perhaps it's a semantic problem but wouldn't massive financial reforms be needed to do away with "much" of Wall St.?

Also, if the GOP's "Wall Street masters won’t be very happy if they" force a default on the debt, why would Obama's very same masters be happy with his doing away with "much" of them?

I will concede that a breakthrough has been made as Obama has deigned to actually talk to a (one) Democratic senator in preparation for the debt ceiling showdown. (

We can only hope he'll restrict his interaction to a single representative of the party, of which he alleges to be a member, before issuing his fellow Dem congressional caucus the "take-it-or-leave-it" debt ceiling offer he's cooked up with the GOP.

IF (that is: IF, IF, IF) allowing the (2010-Obama/GOP-renewed) Bush tax cuts to expire in 2012 brings the budget into surplus in 2017 (the year Obama must leave office, if re-elected), wouldn't it have been "more chess" to have allowed the Bush tax cuts to expire last December so Obama could campaign for re-election (and take away the GOP debt hysteria) by saying "re-elect me to preserve the budget surplus my 1st term has made possible in the middle of the 2nd term I seek"?

The notion presented here, with which I heartily agree, is that the Dems have made a pathetic and destructive habit of being extorted by the Repubs.

Are there any Wall Street derivatives to be had on whether that suicidal tradition remains or falls?

John Puma

Anonymous said...

Is it possible Obama's lawyers have advised him that if Congress fails to raise the debt ceiling, that the 14th amendment grants the President, and thus the Treasury, to meet the government's debt obligations? Conversely, would this be an impeachable offense though the Constitution clearly states it is the government's responsibility to do such?

Anonymous said...

In Friday's Chicago Sun Times, columnist/financial advising hack/corporate shill apparently believes that it is more important to protect oil speculators (i.e. the banksters) than to assist the American poor and middle class.

Here is a link to her article:

prairie2 said...

The new law provides for the dismantling of the big Wall Street banks should they become insolvent (which is inevitable). It's true that new banks could start up again without reforms but once they are gone it will become much easier to again outlaw most of what they do.

The banks of course don't expect Obama to do anything and it's possible it won't happen during his term but the groundwork has been laid.

You can buy a derivative on anything but betting that the Dems will stop being extorted by Republicans would be an expensive bet. The problem is that Republicans will hold a gun to the head of a baby and Democrats will always flinch.

ronmac said...

Good to see the GST is going down. No that GST -in Caada here we have something called the Goods and Services Tax (otherwise known as the Gouge and Screw Tax).

This GST is known as the Goldman Sachs Tax. Except nobody recognizes this a form of taxation.

Anonymous said...

The world uses 86 million barrels of oil per day. .. the powers release 60 million barrels. .. not even 1 day supply. BFD.

prairie2 said...

Most oil isn't traded, compared to the market it is a BFD.

Anonymous said...

No it is not a big deal. Oil prices will go higher over time. It was just a phony political ploy

Anonymous said...

"When Bush came into office the price was $18/barrel and he ran it up to Bin Laden’s demanded price of $140/barrel ..."

Man, that Bush was powerful. So is Reagan, who hasn't been in office in 23 years and dead for 7. .. lol