Image from article Greenspan cuts short Republican-induced stock market rally
Let’s get ready to rumble! The gloves are off as the big showdown between Bush and Kerry continues, with support and resistance depending on party affiliation.
Neither candidate is mentioning what is pushing oil prices higher. Federal Reserve Board Chairman Alan Greenspan delivered an upbeat assessment of the economy’s ability to withstand the spike in oil prices, but he said it could become seriously negative if oil prices were to move materially higher.
Greenspan, speaking the day the New York oil trading price hit $54.93 a barrel, said the current level is not high enough to seriously cripple our economy and send it into a recession like the oil shock of the 1980s. With that attitude, maybe we should go out and buy a Hummer.
Contrary to Greenspan, many economists think today’s prices may be already slowing our overall economic growth.
Those extra few bucks you pay to fill up the tank are dollars you’re not spending on clothes, food or that new digital toy the kids are bugging you for. Increased oil prices have a worse effect than a big tax increase.
Talk with someone filling up their tank when you fill yours and you hear a very angry person who has to commute 50 miles a day. The reaction among employers is the same, because higher energy costs hit everyone’s bottom line. That’s one of the reasons businesses are holding back on hiring or investing in new products.
We are all aware when oil prices go up, the stock market goes down, and the Dow is under 10,000 again. Despite last Friday’s gains, the sharp climb in crude oil futures weighed heavily on the markets last week. The Dow industrials lost 1.21 percent, the Nasdaq composite was down 0.44 percent, and the Town Crier “50” would have been down except for the 16.49 percent increase in Apple Computer stock.
So what is pushing oil prices higher? Global demand is the main reason. China and India, the two biggest developing economies in the world, have doubled their oil consumption since the late 1990s.
Another reason is too little expansion of the world’s production and distribution capacity. Oil companies were reluctant to invest because they didn’t have to.
Think $55 is high for a barrel of crude oil? Wait till the price hits $75 a barrel and a fill-up costs more than $50. Just believing this will never happen is a good reason that it will.
