Sunday, April 17, 2011

Target,WalMart and China and the price of oil

I was at the Supermarket last week. A quart of milk was $1.30, a half gallon, $1.65 and a gallon was $1.79. How does this relate to Target, WalMart and China? China does not buy crude through middle men. It buys gallons, direct from the producers. Target and WalMart operate in similar fashion using their huge buying power to get the best price. Now how do we operate in the United States? We operate through a cadre of middlemen who lock in the price of gallons, and we buy quarts.

When an oil tanker is loaded, the captain does not know where his load will be dropped, except if he is going to China where his price is set with a negotiated profit. Another tanker captain deals with several U.S. marketeers. His price is also set, but it is higher or lower because there is a bidding process.

Now here's the rub. Once the winning bidder gets the tanker full of oil he goes to his market, the refiners- there are many of them, none willing to take a full cargo. He splits it up into quarts and half gallons. What cost the Chinese $1.79 costs the U.S. market as much as $5.20. That middleman, generally sitting at a computer in New York has made a bundle, and you pay at the pump.

Thursday, April 7, 2011

America and the Decline of Rome

Will We Repeat History?

Vandals and Attila the Hun were the military factors that brought a close the Roman Empire according to its eighteenth century chronicler Edward Gibbon. But at the base of the fall was economic atrophy. Bullion hoarding, what in present day context would be termed a liquidity crisis (corporate treasuries invested unproductively), the looting of the Treasury to pay for excesses (bailouts), and inordinate trade deficits necessitated the central government to seek foreign funds and eventually to become beholden to the lenders (China, Saudi Arabia).

Second was the lack of effective military leadership (Bush into Iraq) coupled with excursions to bring Roman values to people in far off territories (Obama into Afghanistan). Christian beliefs conflicted with the working of the empire.

Finally, an environmental problem- pipes for the water brought into Rome were made of lead that leached into the water causing a decline in the mental capacity of the leaders. Vandals attacked Rome supported by Roman elite who had moved into the provinces (states rights). These collaborators promoted secession in order to create fiefdoms in the outlying Roman states.

The Decline and Fall of the Roman Empire occurred over more than a century. Over the last decade our country’s historic parallels to Rome cannot be ignored. Raids on the Treasury coupled with the politically expedient tax cuts have crippled our ability to manage a fiscal crisis that has become endemic.

Fiscal conservatives fear for their political lives if they utter the need for increased revenues to cover the cost of an unnecessary intrusion into far off territories. We cannot protect the health of children or provide veteran benefits. Populists call for reducing taxes, furthering the move to national bankruptcy as in Argentina where Peronistas spent the country from one of post-war prosperity to constant monetary crises. Unfortunately for Argentina it did not have China to prop up its profligate ways.

Concentration of some of the body politic to bring government into ending a woman’s freedom to make extremely personal decisions, inherent in the Constitution but in conflict with religious beliefs, placing laws based on religious belief against legalized associations of persons with alternative life styles are but two issues that have deflected political concentration from what is really needed to govern.

Despite our knowledge of the effect of lead, water pipes in many older U.S. cities and foreign countries remain a problem. But there is an even greater environmental problem, one that we can see or test in the poisons we release into the atmosphere and our streams, and the one that is creeping up on us with the melting polar ice and the rising sea levels.

Finally, is the age of vandalism (riots) approaching? Will it grow into the terrorism and calls for secession as in Rome? Time will tell. Only our resolve to avoid repeating history will counter the trend.