Car fire Freshfield road  09/01/2006 05:06
Pictured: The American Economy in the Aftermath of the Oil Bubble

Today, crude oil prices fell by a pay jaw dropping four percent; the cascading effects through the international economy will reduce all costs and prices in a few short weeks.  However, the damage by the four month oil bubble has already culminated and several destitute developments.  Americans have been saddled with a devalued dollar and increasingly reckless investors.  Inflation during the oil bubble drove up prices and despite energy costs decreasing all other prices will remain high. Wall Street traders first drove the price of oil up through over eager investments and now are backpedaling at record rates as the economy suffers a stinging blow that could result in a double dip recession.  The Commodity Futures Trading Commission, who monitors this market, not only allowed this financial disaster to happen but openly encouraged it in defiance of Congress.

How Did the Oil Bubble Devalue the Dollar?

In the past couple of months wrenching transportation costs caused by the oil bubble drove up energy prices around the world.  When transportation costs rise sellers of goods have to raise prices in order to stay profitable; this drives prices for goods across all markets.  The rises in rapid inflation.  Despite the costs now dropping the dollar has already been devalued; prices will remain higher than before the oil bubble.  This distressing fact manifests in every developed nation, as the latest paychecks will be worth a little bit less and economic slump will sag a little bit more.  The United States will be hit worst by this crisis because nearly all OPEC reserves are traded in American dollars.

What Do Wall Street Traders have to do with the Oil Bubble?

One of the largest markets that investors gamble in is futures.  This financial system acts like a delayed contract.   Businesses generally buy products with money in normal transactions; futures allows those same contracts to be used on goods produced in the future, sometimes before they are even produced.  By speculating on the price investors beat the market rate and make small fortunes.  The problem with this process is that these contracts can be bought multiple times and each time the price of the gas rises to balance out the cost to obtain the future.  To further compound the issue third part investors can bet on the contracts as well, driving energy prices up over 40% of their real value.    This drives up energy prices, along with every facet of the economy, at record rates with bounding inflation.  Once these investors realize their futures are overvalued they rapidly sell off them, resulting in 4% dip in crude oil prices today.

Why Was This Harmful Speculation Allowed?

Senator Bernie Sanders, a prominent socialist from Vermont with one of the most progressive stances in Congress, outlined how this financial debacle endangered the United States and how it could have been easily prevented.  The Commodity Futures Trading Commission, which is supposed to monitor, was given strict speculating limits to prevent this exact scenario.  While energy prices would have risen they would have not bubbled and busted catastrophically.  However, the CFTC deliberately disregarded its duties, not implementing Congress appointed restrictions on the futures market. Corporatist leadership within the Commission is having its hand forced by Congress as a bill is being passed that will force this government institution to do its job.  These reactionary measure will prevent this type of bubble from forming ever again, if administer properly.