I should expand further on that minor bubble in commodities I mentioned in the previous post. This is one bubble that actually hurts us and where popping the bubble is beneficial.
That bubble is an oil bubble.
I actually agree with Democrats that much of the rise in the price of oil was due to speculation and not at all to supply and demand. Most want to blame the weak US dollar, but that can't possibly explain how gas prices also doubled in Europe. Why is it with a strong Euro that gas prices can rise so high? It isn't supply with the Saudis unable to sell what they pump and being forced to store the excessive oil.
When the California pension system starts to invest in oil and commodities funds, we know something's wrong and that speculation has a hand in it.
The rising price of oil ended up raising our cost of gas to $4/gallon or higher. That also raised inflation as transportation costs for our goods and services went up.
As with all things not related to supply and demand, bubbles must burst. After rising to nearly $148/barrel in light, sweet crude, the bottom dropped out. Even with OPEC announcing a production cut, oil is continuing to drop and has fallen to $103/barrel and is likely to fall further as it crosses under the 200-day moving average.
When this bubble is completely burst, my guess is that oil will settle somewhere in the $50-60/barrel range. That will go a long way to resurrecting our moribund economy and the world economy as well, which is entering a possible world-wide recession.
