Why Wests oil fix is bad news
Why is last weeks surprise release of 60 million bar rels of oil from govern ment reserves bad news? Because its the Wests -- and President Obamas -- last hope to goose the economy. Obama and European leaders are so desperate that theyll even promote burning cheap hydrocarbons -- theyd rather save the banks than the planet.
Worse, theyre still bent on avoiding post-bubble reality.
America, Germany, France, Spain, Japan and Italy dropped their bombshell Thursday. Over a month, theyll draw on emergency oil reserves, with America providing half the supply.
Its only the third time that the West has ever taken such action. The jolt was supposed to push prices down, and it worked -- oil dropped 7 percent.
Good idea, right? Over a month, were replacing the 1.4 million daily barrels that war-torn Libya isnt producing, and then some. Sure, its not much in the long run, compared to the 82.1 barrels the world makes daily. Why not wield power to scare OPEC and the speculators?
Because it stinks of desperation. Going into his second long, hot “recovery summer,” Obama will do anything to keep gas prices below $4. As growth in Europe slows, Nicolas Sarkozy, Angela Merkel and rest will also take any short-term fix.
The move should anger people on the left and right. First, these leaders are obviously perfectly willing to ditch a prime capitalist principle: Markets should set commodity prices.
Libyas disruption is part of the market. Whether youre buying an SUV or a jetliner fleet, you need to remember that Mideast supplies arent 100 percent reliable. Prices can spike.
A real emergency would be different. It would be OK to tap petroleum reserves if, say, al Qaeda took over Saudi Arabia and the West couldnt buy its 10 million barrels. But Libyas lost output is far smaller.
Its also a slap at environmental thinking -- which says that gas prices should be high, so that people buy smaller cars and drive less. Want to wean the West off oil? Make sure gas prices hurt.
Why are Western leaders torching their beliefs? Because everything theyve tried over the last four years to juice growth isnt working -- and theyre terrified.
Interest rates cant go lower. The Federal Reserve is out of tricks -- Fed chief Ben Bernanke said so last Wednesday. Congress wont approve more stimulus -- indeed, the House wont even raise the debt limit without major cuts in spending. Europes central bank, too, is tired of providing extraordinary aid.
Weve wasted more than three years without admitting the real problem.
In America, people still bear their bubble-era debt -- with no bubble to show for it. Remember, mortgage debt doubled between 2000 and 2007, and is down only 5 percent now.
Banks pretend that Americans can pay this back without suffocating growth. Americans are pretending right back -- cuz they dont want to admit that the house value they needed for retirement isnt coming back.
Europe, meanwhile, has spent more than a year pretending that Greece can afford debt of more than 150 percent of GDP. Greece has half-heartedly pretended, too. But its getting old.
Fantasy finance has frozen the Wests economy. Nobody can do anything until they find out what debt will be repaid, and what debt wont -- and until they learn whether the banks can withstand the shakeout. Until then, banks are just sloshing around money and making fees.
That the West will do almost anything to avoid reality adds to the unease.
The White House and regulators are afraid to pull the trigger on forcing faster foreclosures and writedowns of bad housing debt. Theyd rather let banks “work out” bad mortgages by delaying forever and then tacking impossible mortgage payments into the future (worked well in 2005, with “teaser-rate” mortgages). If banks had to face the real housing market, theyd eat right through their reserves.
And Europe is afraid to pull the trigger on Greece - because nobody knows what would happen to global banks and money-market funds.
We need to burn up some of that bad debt, and let lenders suffer the free-market consequences of their bad decisions. A brief oil gusher may confuse markets for a while, but Western economies wont leave the doldrums till our leaders face reality.
Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/desperation_move_Go04PfapAdG0bi4Ab9VU9K