Lets just admit it: We dont have a true free-market economy. If we did, the market would set the price of money, with the supply and demand for credit setting interest rates rather than a handful of unelected bureaucrats at the Federal Reserve. If we did, politicians wouldnt dole out tax credits, subsidized loans, and generous government contracts to preferred industries and companies. And if we did, we wouldnt have bailed Wall Street out of the mess it created during the housing bubble with nary a slap on the wrist — with some estimates putting the price tag at nearly $8 trillion — as their CEOs spent millions on bonuses and office redecorations in the midst of the downturn... How bad could it get? Morgan Stanley warned its clients that Brent crude, which is now joust above $61 a barrel, could fall as low as $43 in the first quarter of 2Unless oil gets back up to $80 a barrel soon, which is where Barclays Capital believes the U.S. shale oil industrys breakeven price is, the energy sector will be in trouble, with knock on effects for the rest of the economy. On Sunday, United Arab Emirate Energy Minister Suhail Al-Mazrouei said OPEC would stick to its guns even if oil prices fall as low as $40 a barrel and would wait at least three months before considering an emergency meeting. Sure, cheap oil is great for consumers, with Credit Suisse estimating that the average family will enjoy an extra $1,000 on an annualized basis from the drop in gas prices. But calculating the contagion effects from a collapse in the U.S. shale industry — from debt defaults, to layoffs, to a cut in investment spending (of which energy is responsible for about a third of overall spending) — suggests we could collectively end up worse off... So maybe it’s time to start thinking about another bailout. Outside of the economic justification for assistance to the energy industry — perhaps in the form of a federal tax holiday — there are also the foreign policy implications of the oil sheiks cold-blooded attempt to bolster OPECs market share at the expense of domestic U.S. producers. The government already provides billions in annual tax breaks to big oil, but continuing Americas path to energy independence is worth something; it reduces our exposure to risks such as transit bottlenecks (such as Irans presence in the Strait of Hormuz), vulnerable regimes (such as the Wests intervention in Libya in 2011), and a repeat of OPECs oil price shocks of the 1970s. See more at: thefiscaltimes/Columns/2014/12/15/Why-Big-Oil-Needs-Bailout-New-OPEC-Price-War#sthash.SbNg5gIr.dpuf
Posted on: Fri, 26 Dec 2014 15:18:05 +0000