16 June, 2008

Crude Oil surpasses the Dot-Com Craze

This article, by Michael Patterson and Elizabeth Stanton, on Bloomberg suggests that there might well be parallels between the Dot-Com craze and the rise of Crude Oil prices in recent years. Crude Oil has risen to almost 8 times the price it was at in November 2001.

So, is Crude Oil a bubble ? Or is it really factors like "increased terrorism risk, the situations in Iraq and Iran, increasing demand from China and India, the fall of the US$, the general rise in commodity prices etc, stagnating production etc" ? Are economists right in berating developing countries for subsidising oil products for the poor ?

I think it is an outright speculative jump in prices. Crude Oil began rising a few years ago. But not many people noticed a link between the release of trillions of dollars by the US Federal Reserve, the European Central Bank, even the Japanese Central Bank since the "sub-prime crisis" erupted in August 2007 and the almost 100% rise in Crude Oil prices since then. If Stock Markets haven't been strong, if homeowners and corporates are facing difficulties in getting loans, inspite of low interest rates, where did all that money go ? How could billions of dollars pumped into the banking system not go to borrowers ?

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