Oil

This is what my friend has told me about oil, and the dollar. It makes sense.

I've been trying tofigure out what's going on with Oil, whether it's due to supply &demand, speculators, or something else, and I think it's mainly thedepreciation of the dollar. Oil hasn't increased in price when pricedin gold. A small portion of the world's people people own or control a largeportion of the world's wealth, and some of it is liquid (eg, notinvested in businesses, factories, real estate, etc.). In times offinancial instability and change, that wealth is sloshing around theworld trying to find safe havens where it won't depreciate too much.The credit collapse is tanking US and European, and maybe Asian stockmarkets, so stocks are not an option. The bond market is risky too, due to the expectation of inflation anddollar depreciation. The Fed hasn't really started inflating themoney supply yet, but the expectation is that they will.HIstorically, when a nation reaches a certain debt:GDP ratio, thegovernment invetibly choses to reduce the debt burden byhyperinflating the currency instead of cutting spending, raisingtaxes, and paying down the debt honestly. The fear is that the US hashit that point, or is close to it. Our ~$2.4T tax base (in goodtimes) will not be enough to even service our debt interest soon, witha ~$10T deficit, ~$50T+ in unfunded Social Security & Medicarepayments coming due over the next 50yrs, and the balance of paymentson those entitlements going negative in 2011 (more payouts thanSS/Medicare tax revenue). So that leaves commodities, precious metals, energy, and currencies asthe only liquid assets left investing that sloshing wealth in.Anything priced in dollars is vulnerable to dollar depreciation, butsince global demand for commodities and energy won't decrease, theprice can be driven up inversely to the dollar without risk of demandfalloff (which would bring the price back down). Eg, commodities andoil are a reliable hedge against a falling dollar, even when priced indollars, so that sloshing 'smart money' is being channeled intocommodities and oil, creating bubbles in those markets. Not completely sure yet how other currencies and gold fit into thepicture, still working on that. Gold and silver can be consideredboth precious metal and money, which makes them safe havens duringtimes of inflation or deflation (we have both right now,paradoxically), hence the increasing demand for them. The Euro, Iunderstand, is still fundamentally shakey. It's relatively new, hasno real country backing it, and I'm not sure what assets back it (USFederal Reserve notes are backed by the $800B in Treasury bonds theFed owns, though part of the dollar's collapse is that the Fed hasbeen using those bonds to prop up failing investment banks, andthey're down to less than half now). Some expect the Euro toeventually fall against the dollar when the world realizes Europe hasworse long term debt:GDP problems than America. Anyway, that's my best understanding so far, though I suspect I'veonly scratched the surface. I suppose 'speculators' is one word forwhat's happening, but only superficially....