Gordon Brown’s Barmy Answer To The Oil Crisis
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“Captain, we’re running out of fuel!” “Don’t panic! Just burn up what little we have. And burn it faster!” Gordon Brown, crisis buster extraordinaire, has a solution to the energy crisis. Are you ready?
Here it is:
We need to pump 50,000 barrels more each day.
It’s a masterstroke. A policy that manages to be really bad in two different, fundamental ways.
Point one — we don’t have much oil left. This will deplete our reserves faster.
Point two — the world as a whole produces 85 million barrels a day. This extra production will have no impact on the oil price. It’s like throwing a dart at a tank.
Of course, there could be another motive for this. Brown famously sold a lot of our gold in 1999. Since then, the price of gold has soared. It was a really, really bad trade. If Brown was your fund manager, you’d sack him.
Maybe Gordon’s trying to make up for it now. Britain is a price taker in the global oil market. We have no influence on how much a barrel of crude costs. Now oil is hitting record highs. Some, like our own Bill Bonner and our Time Trader, Robin Tracey, suspect we could be in bubble territory.
Perhaps Brown is advocating increased production to capitalise on the high price (though even then, I don’t think it’s at all his call to make). I don’t really believe this… but I’m trying to think of a rationale for this mad policy.
If that is the case… OK. We’ll talk about it.
Just don’t dress it up as the energy solution it clearly, clearly isn’t.
Below, commodities hound Garry White proposes a far more workable solution. He also follows up on yesterday’s Blackout Britain story — why was it that the lights went out in Cleveland?
House prices lose their footing
Woops!
You remember my rock climbing analogy from two days ago? The one that likened the housing market to a climber on a rock face, trying to descend to a sustainable level and groping around for a foot hold?
Well, the climber’s slipped. He’s not at the bottom (at least, we don’t believe so). But he has slipped a bit, and grazed his face on the rock.
According to the latest Nationwide house price index, the average house price has fallen 4.4% since May last year. That’s the biggest fall since December 1992 (when prices fell by 6.3%).
But here’s a line from the FT that puzzles me:
“The price drop makes the position of the Bank of England’s monetary policy committee even more complex as it struggles to set an interest rate policy which is consistent both with surging inflation and a deep slowdown in economic activity”.
Why? Why should it make the Bank’s job more difficult?
I’m going to have to quote from the Bank of England Act again, aren’t I? Here we go…
In relation to monetary policy, the objectives of the Bank of England shall be — (a) to maintain price stability, and (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.
The key phrase is ‘subject to that’. If prices are stable, worry about growth and employment. If they’re not, don’t.
There isn’t an interest rate policy consistent with both surging inflation and a deep slowdown in economic activity. There’s no reason to think there would be. That’s why each policy tool should be used to achieve one, and only one, policy goal.
In the case of interest rates, the goal is price stability. Keeping inflation down.
Falling house prices may make ugly headlines, but that shouldn’t be the Bank’s concern. And besides, house prices got too high anyway.The housing market is trying to find an equilibrium. Let’s go back to my climber on the rock face. He knows there’s solid ground below. He’s making his way down… from time to time he slips, but then the safety rope kicks in.
This “Belay Effect” takes the form, for example, of people desperate to buy, but priced out of the market. As soon as prices slip a little, they’re in!
But our climber’s still searching for a surer footing. So he’ll keep edging downwards. And here’s where the Bank of England might make a nuisance of itself. The equilibrium is below the climber. Cutting rates has the effect of temporarily hoisting him higher up the wall.
But he still has to come down.
Solving Britain’s power crisis — the Garry White two-step
Step one — start building nuclear reactors. But remember — these take over a decade to build. You can’t just throw them up. Best get started, then, however unpopular it may be with environmentalists.
Step two — find a workable solution for the interim period. For Garry, the solution is a four-letter word. Coal!
“Coal’s making a comeback,” says Garry. And that, dear reader, leads me onto step three:
Invest in coal. This is exactly what Garry told his Smart Commodities readers to do last October. But Garry was too far ahead of the curve — his coal stock slumped straight after.
But Garry’s stuck with it. And he’s told his readers to stick with it, too. He sees the current energy crisis for what it is — a gap to be plugged… and a great investment opportunity.
Garry’s been rewarded for his patience — his coal stock’s now showing a 19% profit since recommendation, despite the earlier dip. Now, past performance is not a reliable indicator of future results. Perhaps Garry was lucky?
“Not a bit of it!” says the man himself. “Investors are slowly waking up to coal’s profit potential. The world needs energy — and coal, however dirty it may be, is a proven source. This stock has a way to go yet. Get it in your portfolio!”
Find out today what Garry believes is the number one coal investment on the market right now!
Until tomorrow
Ben Traynor
Source: Gordon Brown’s Barmy Answer To The Oil Crisis
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