The country was a single party country. The acronym for the main and only party was IWTBR, but because there was only one party people were not aware of the name. It did not matter. Some erudite people knew the acronym and even the meaning but the rest never heard it. The leaders of the party were strong believers in Democracy. After all it was supposed to be a very democratic country. Perhaps the most democratic country. Also, all leaders were totally in agreement among themselves about the party's platform. The 600 plus top leaders knew and worked to push the party ideology.
The IWTBR was the acronym for "I want to be reelected". Everything everyone did was not for this or that need. It was only to feed their own needs of money and power by getting reelected. Everything else was secondary, so bribes were renamed "Campaign Funds" and PAC's ruled. There was a pretense that "tit for tat" was undesirable, but given the need to get reelected it was just a matter of being a little creative. Lobbyists wrote the laws and passed them to the staffs of the members of Congress. The actual Congress men and women and the Senators did not have the time nor the interest in reading the statutes they were passing.
Now the quiz: Can you recognize the Country?
Thursday, March 12, 2009
Sunday, March 8, 2009
Price of Oil
Engineers cannot not get Nobel prizes. Unlike the semi-science of Economics, Engineering is deemed not at a level that deserves a Nobel prize. In that sense, we are in the same league as another suffering profession, sanitation engineers, aka janitors.
So lets leave Technology and come to try some common sense applied to the pricing of Oil. In the last year we have seen a tremendous peak, followed by a spectacular fall. What drives the price of oil?
Of course, many factors drive the price of a major commodity, some expected and some random. Here I want to describe a very major factor which I think has not received enough attention.
Most oil is now produced and controlled by sovereign countries. When a non-renewable commodity such as oil, or iron-ore for that matter, is offered by these countries, they will limit the quantity offered to their needs of foreign exchange, and no more. The higher the price of the commodity the lower the production needed to obtain the foreign exchange that the producer country needs.
There is a silent agreement from producers, even outside OPEC, to not offer a non-renewable resource when there is no need for dollars. At the current rate of depreciation of the dollar that is fully understandable.
One example of this policy is Saudi Arabia trying to get into aluminum production. This requires high levels of cheap electrical energy usually from hydroelectric sources. Instead, they will use their oil to generate terawatts of electricity to produce this aluminum. You can see that the real objective is to further reduce the supply to the commodities markets. The supply and demand curves do not reflect this effect.
The net result is that when the price of Oil goes up, the production will go down. The reverse is also true. When the price goes down, the production will increase and push the price further down. Of course this a case of positive feedback, a vicious circle. Until a major external event stops the trend, the change in the price of Oil day to day will tend to be in the same direction as the change in price the day before.
Part of this blog appeared in a message I sent to Paul Krugman's blog on June 27, 2008
So lets leave Technology and come to try some common sense applied to the pricing of Oil. In the last year we have seen a tremendous peak, followed by a spectacular fall. What drives the price of oil?
Of course, many factors drive the price of a major commodity, some expected and some random. Here I want to describe a very major factor which I think has not received enough attention.
Most oil is now produced and controlled by sovereign countries. When a non-renewable commodity such as oil, or iron-ore for that matter, is offered by these countries, they will limit the quantity offered to their needs of foreign exchange, and no more. The higher the price of the commodity the lower the production needed to obtain the foreign exchange that the producer country needs.
There is a silent agreement from producers, even outside OPEC, to not offer a non-renewable resource when there is no need for dollars. At the current rate of depreciation of the dollar that is fully understandable.
One example of this policy is Saudi Arabia trying to get into aluminum production. This requires high levels of cheap electrical energy usually from hydroelectric sources. Instead, they will use their oil to generate terawatts of electricity to produce this aluminum. You can see that the real objective is to further reduce the supply to the commodities markets. The supply and demand curves do not reflect this effect.
The net result is that when the price of Oil goes up, the production will go down. The reverse is also true. When the price goes down, the production will increase and push the price further down. Of course this a case of positive feedback, a vicious circle. Until a major external event stops the trend, the change in the price of Oil day to day will tend to be in the same direction as the change in price the day before.
Part of this blog appeared in a message I sent to Paul Krugman's blog on June 27, 2008
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