Is It Peak Oil?

[Finster]

Re: Is It Peak Oil?

finster, this reasoning is too narrow. what matters is relative demand. surely there are alternative uses for dollars, including holding it as cash. given the money supply, you'd need to know the demand for cash as well as alternative products. the demand for cash also relates to velocity, a factor which you have omitted from prior discussions iirc. have you addressed the issue of velocity?

Basically I am siding with Metalman's statement: "Inflation is not only determined by the supply of goods available relative to the supply of money to buy them, but also the demand for the currency in which goods are priced relative to the supply of that currency. It can be hard to tell which factor is primarily driving prices."

It is crucial to understand that when we use phrases like "the price of oil" we are putting undue emphasis on only half the picture. The price of oil we usually hear quoted is in "dollars per barrel". This is a ratio, is it not? Just like when we talk about the speed of a car, the number depends both on a unit of length and a unit of time - as in meters per second, or miles per hour, the quantity depends on both units.

Being accustomed to growing up in a world where the "value" of something is always stated in reference to a dollar, we have to work a little to remind ourselves that the value of that dollar, unlike most other units to which we are accustomed, itself can change. Whenever a barrel of oil is traded at any price, there are not one but two commodities involved in the trade. The oil and the currency. And that a change in the value of either one can result in a change in what we semi-accurately call "the price of oil". It is merely because we are accustomed to using dollars as a measure of value that we tend to tacitly assume that a change in the price of oil represents a change in the value of the oil. But any such assumption is unfounded. If we want to talk about the dollar price of oil, we have to take into account not only the supply and demand picture for oil, but also the supply and demand picture for dollars.

[bart]

Re: Is It Peak Oil?

It is crucial to understand that when we use phrases like "the price of oil" we are putting undue emphasis on only half the picture. The price of oil we usually hear quoted is in "dollars per barrel". This is a ratio, is it not? Just like when we talk about the speed of a car, the number depends both on a unit of length and a unit of time - as in meters per second, or miles per hour, the quantity depends on both units.

And even more than that, or at least another viewpoint on it, is that there are two elements to the value of the dollar - the value inside and the value outside the country. And they vary independently of each other.

The changing dollar

[Finster]

Re: Is It Peak Oil?

And even more than that, or at least another viewpoint on it, is that there are two elements to the value of the dollar - the value inside and the value outside the country. And they vary independently of each other.

Au contraire ... they are inextricably linked. It is no coincidence that the inflation of the 1970's was catalyzed by an international dollar devaluation in 1971. And that the inflation we've been seeing lately has also been accompanied by a corresponding decline of the dollar's purchasing power overseas. These values are not independent elements, but merely two facets of the global market value of the dollar. They may diverge for a time, but the pressure of global arbitrage is always driving them towards each other, and as globalization proceeds, that pressure grows.

[bart]

Re: Is It Peak Oil?

Au contraire ... they are inextricably linked. It is no coincidence that the inflation of the 1970's was catalyzed by an international dollar devaluation in 1971. And that the inflation we've been seeing lately has also been accompanied by a corresponding decline of the dollar's purchasing power overseas. These values are not independent elements, but merely two facets of the global market value of the dollar. They may diverge for a time, but the pressure of global arbitrage is always driving them towards each other, and as globalization proceeds, that pressure grows.

Au contraire^2 ;)

Although the recent dollar decline (since 2002) does correlate fairly well with US inflation, and there is a linkage - it isn't always like that, much like gold doesn't always go opposite to the dollar trend.

Globalization will indeed tend to link them more as time goes on, but as my changing dollar page shows the dollar has consistently lost value since at least the '50s. The international value of the dollar however has had some very large multi year gains against other currencies - and against gold too.
And yes, the FDI exposes the real overall losses too.

[Finster]

Re: Is It Peak Oil?

Au contraire^2 ;)

Although the recent dollar decline (since 2002) does correlate fairly well with US inflation, and there is a linkage - it isn't always like that, much like gold doesn't always go opposite to the dollar trend.

There's no reason why there should be any reliable correlation between that dollar decline and US inflation. That's because each is measured relative to a different reference. The "dollar decline" as you presumably use it compares the dollar to other currencies, while the "inflation" compares it to real stuff. To the extent those currencies vary in relation to real stuff, the normal expectation would be a corresponding variation between the dollar (in forex markets) and the dollar as in domestic inflation.

But that is not the same as the "value inside the country" and the "value outside the country". To compare those, you need to measure them relative to the same reference - whether it's other currencies, real stuff, or whatever. It simply is not an apples-to-apples comparison to assert that the "value outside the country" and the "value inside the country" are completely independent on the basis of using real stuff for one and currency for the other.

This is a common error, and explains why so many analysts were baffled by the failure of the price of gold to move oppositely to the "dollar trend" in 2005. The price of gold compares the dollar to real stuff, while the "dollar trend" compares it to other currency. The fact that the "other currency" itself may have moved seems not to have occurred to those analysts. In fact, what happened is that virtually all the major currencies were inflated and lost value last year.

The rise in the USDX merely reflected that the USD had a smaller loss!

[jk]

Re: Is It Peak Oil?

There's no reason why there should be any reliable correlation between that dollar decline and US inflation. That's because each is measured relative to a different reference. The "dollar decline" as you presumably use it compares the dollar to other currencies, while the "inflation" compares it to real stuff. To the extent those currencies vary in relation to real stuff, the normal expectation would be a corresponding variation between the dollar (in forex markets) and the dollar as in domestic inflation.

But that is not the same as the "value inside the country" and the "value outside the country". To compare those, you need to measure them relative to the same reference - whether it's other currencies, real stuff, or whatever. It simply is not an apples-to-apples comparison to assert that the "value outside the country" and the "value inside the country" are completely independent on the basis of using real stuff for one and currency for the other.

This is a common error, and explains why so many analysts were baffled by the failure of the price of gold to move oppositely to the "dollar trend" in 2005. The price of gold compares the dollar to real stuff, while the "dollar trend" compares it to other currency. The fact that the "other currency" itself may have moved seems not to have occurred to those analysts. In fact, what happened is that virtually all the major currencies were inflated and lost value last year.

The rise in the USDX merely reflected that the USD had a smaller loss!

gold just tracked the euro against the dollar for a while a few years ago. it was only when gold broke out against the euro, the loonie, etc, that it could be said we were in a true bull market for pms.

[Finster]

Re: Is It Peak Oil?

gold just tracked the euro against the dollar for a while a few years ago. it was only when gold broke out against the euro, the loonie, etc, that it could be said we were in a true bull market for pms.

Question: If the dollar were to fall in value by 12% - and the euro, loonie, yen ... (all the other currencies in the USDX basket) fell by 15%, what would the change in the USDX show?

[jk]

Re: Is It Peak Oil?

Question: If the dollar were to fall in value by 12% - and the euro, loonie, yen ... (all the other currencies in the USDX basket) fell by 15%, what would the change in the USDX show?

as you well know, finster, your question is not well-defined or, put differently, it is circular. "dollar falls in value by 12%" is usually taken to MEAN a drop in usdx by 12%. the currencies in the usdx basket drop is ususally DEFINED as dropping against the dollar. you don't need to hammer away at this so much. enough, already. we know that there is relative movement of one currency against another at the same time that there is relative movement of currencies against stuff. and we know that the answer to this measurement dilemma lies [you say, and why not believe you although we can't check to know for sure] in your very own FDI!! salaam.

[Finster]

Re: Is It Peak Oil?

as you well know, finster, your question is not well-defined or, put differently, it is circular.

It's not circular. At least unless you assume that the USDX and the value of the dollar are the same thing. As Ayn Rand wrote, "if you find yourself faced with a contradiction, examine your premises".

Relinquish the faulty premise and the contradiction melts away.

This must be one of the most misleading series in all of finance. Otherwise, we wouldn't have to suffer the makeshift explanations for how it was in 2005 that gold failed to do the opposite of the dollar. Most commentators simply failed to realize that the dollar did not rise, but fell. How do you expect people to get a grip on finance when working on the basis of such a faulty basic assumption? We are not talking about a mere random point of pedantry, but a central issue in understanding financial markets. It is an extremely important distinction, but one which our habitual jargon constantly distracts us from. Therefore we have to make a regular, conscious, effort to keep it straight in our minds.

...you don't need to hammer away at this so much. enough, already...

Make you a deal. Whenever we're talking about the dollar value, as long as you don't assume we're talking about relative to the USDX currency basket, I won't mention it.

[jk]

Re: Is It Peak Oil?

This must be one of the most misleading series in all of finance. Otherwise, we wouldn't have to suffer the makeshift explanations for how it was in 2005 that gold failed to do the opposite of the dollar. Most commentators simply failed to realize that the dollar did not rise, but fell. How do you expect people to get a grip on finance when working on the basis of such a faulty basic assumption? We are not talking about a mere random point of pedantry, but a central issue in understanding financial markets. It is an extremely important distinction, but one which our habitual jargon constantly distracts us from. Therefore we have to make a regular, conscious, effort to keep it straight in our minds.



Make you a deal. Whenever we're talking about the dollar value, as long as you don't assume we're talking about relative to the USDX currency basket, I won't mention it.

i think instead that when we talk about the dollar value we say "relative to other currencies," "relative to tangibles," "relative to financial assets," or "relative to the grand FDI"!

[bart]

Re: Is It Peak Oil?

There's no reason why there should be any reliable correlation between that dollar decline and US inflation. That's because each is measured relative to a different reference. The "dollar decline" as you presumably use it compares the dollar to other currencies, while the "inflation" compares it to real stuff. To the extent those currencies vary in relation to real stuff, the normal expectation would be a corresponding variation between the dollar (in forex markets) and the dollar as in domestic inflation.


But that is not the same as the "value inside the country" and the "value outside the country". To compare those, you need to measure them relative to the same reference - whether it's other currencies, real stuff, or whatever. It simply is not an apples-to-apples comparison to assert that the "value outside the country" and the "value inside the country" are completely independent on the basis of using real stuff for one and currency for the other.

Indeed, they are not independent either and also not necessarily even correlated since it depends on relative inflation or disinflation or deflation of all the other currencies. But an inside and outside the country valuation is I think how most folk look at it, if they're even bothering to look at the international dollar value.

And the rub is that there is no widely held agreement or understanding of "worldwide" inflation either, a fact which central banksters and other lowlifes consistently use to their advantage.

This is a common error, and explains why so many analysts were baffled by the failure of the price of gold to move oppositely to the "dollar trend" in 2005. The price of gold compares the dollar to real stuff, while the "dollar trend" compares it to other currency. The fact that the "other currency" itself may have moved seems not to have occurred to those analysts. In fact, what happened is that virtually all the major currencies were inflated and lost value last year.

Indeed^2 yet again, oh FDI maven.
That's part of the reason I put up that changing dollar page - to emphasize that it itself is actually a variable.

Would that gold was a better and more consistent indicator of loss of fiat currency value - it sure would expose the financial games behind the curtain in a hurry. Maybe and hopefully by the next cycle, much broader understanding of the true simplicities will exist.

The rise in the USDX merely reflected that the USD had a smaller loss!

As Valley girls used to say... fer shure.

[Finster]

Re: Is It Peak Oil?

Indeed, they are not independent either and also not necessarily even correlated since it depends on relative inflation or disinflation or deflation of all the other currencies. But an inside and outside the country valuation is I think how most folk look at it, if they're even bothering to look at the international dollar value.

And most folk underperform the averages, too.

Now what's the point of calling yourself a contrarian if you measure the validity of opinion based on the consensus?

And the rub is that there is no widely held agreement or understanding of "worldwide" inflation either, a fact which central banksters and other lowlifes consistently use to their advantage.

Another point in favor of challenging the conventional understanding ...

Indeed^2 yet again, oh FDI maven.
That's part of the reason I put up that changing dollar page - to emphasize that it itself is actually a variable.

One of my favorite features on your site.

... surprise, surprise ... ;)

Would that gold was a better and more consistent indicator of loss of fiat currency value - it sure would expose the financial games behind the curtain in a hurry. Maybe and hopefully by the next cycle, much broader understanding of the true simplicities will exist.

Oy. The behavior of gold prices - even after adjusting for currency variations - is complex. The real market value itself can vary wildly, even if over multi-decade time frames it exhibits strong mean regression. Just one factor is the availablity of some currency which is solid and securities denominated in that currency. Part of the real increase in gold's market value last year was probably due to the fact that virtually all the major currencies were falling in a competitive devaluation type scenario, leaving gold just about the only safe form of money. Then there's the rate of change of inflation; a second derivate phenomenon.

As Valley girls used to say...

[bart]

Re: Is It Peak Oil?

And most folk underperform the averages, too.

Now what's the point of calling yourself a contrarian if you measure the validity of opinion based on the consensus?

I abase myself, oh worthy one.

That's part of the reason I put up that changing dollar page - to emphasize that it itself is actually a variable.

Another point in favor of challenging the conventional understanding ...



One of my favorite features on your site.

... surprise, surprise ... ;)

If I didn't know better, I'd think that the starting work on your FDI and my page were done around the same time. ;)

Oy. The behavior of gold prices - even after adjusting for currency variations - is complex. The real market value itself can vary wildly, even if over multi-decade time frames it exhibits strong mean regression. Just one factor is the availablity of some currency which is solid and securities denominated in that currency. Part of the real increase in gold's market value last year was probably due to the fact that virtually all the major currencies were falling in a competitive devaluation type scenario, leaving gold just about the only safe form of money. Then there's the rate of change of inflation; a second derivate phenomenon.

As Valley girls used to say...

Oy & indeed & fer shure, it took me a long time to find things that even vaguely tracked with gold for forecasting purposes - complexity is a major understatement.

[Finster]

Re: Is It Peak Oil?

... Oy & indeed & fer shure, it took me a long time to find things that even vaguely tracked with gold for forecasting purposes - complexity is a major understatement.

... ahhh ... maybe that's not such a bad thing, though ... making sense of it all ... after all, that's what folks like me and thee are for ...;)