The $390 Billion Cost of Cheaper Oil Prices

We've noticed that retail gasoline stations no longer feature what baseball calls "crooked numbers" in their posted prices. Regular is now below two dollars per gallon in New Jersey, where we live. Sounds great, doesn't it?

Image: dailyfreep.com

Well, it does and it doesn't. The negative side is occurring in the new oil-patch state of North Dakota, where, as a Fox News story notes, state revenues are coming up over five billion dollars short of projections. While that's Monopoly money in Silicon Valley and Manhattan, that's real money in the Great Plains.

Today's Bloomberg Business includes a story about the economic impact of falling oil prices in the larger economy. The tally? $390 billion. Some officials interviewed for the article believed local oil-patch banks, which happily loaned money to drilling firms, might "feel pain." The pinch might also be noticed among those pension funds, mutual funds, and other investment vehicles which put their clients' money where the oil firms' mouths were. That net includes just about everyone, period.

Meanwhile, GOP Congressional backers of the Keystone XL pipeline, designed to ship Canadian oil to American Gulf Coast ports and facilities, are pushing toward legislative approval of this environmental disaster in the making. One would think that cheap oil would knock out the key argument in the pipeline's favor. However, that line of reasoning would be rational, an approach the GOP does not appear to embrace. Just to keep things fair and balanced, President Obama recently said he would set in motion permission for oil drilling off the US Atlantic coast. His stance frankly made as little sense as the Republican Party's urgency to push Keystone through a legislative keyhole.

Whatever happened to Sarah Palin's battle-cry "Drill, Baby, Drill"? Who would have ever imagined a Palin-inspired idea would become something both political parties' poo-bahs would advocate?

Geithner: We Can Handle Rising Oil Prices

Treasury secretary Tim Geithner told a Bloomberg Breakfast gathering today that the economic "recovery" put nations in stronger positions to navigate through the current wave of oil price hikes.

"Central banks have a lot of experience managing these things," Geithner said.

One wonders. Libyan resources represent 2% of the world's crude oil production. More significantly, Libya's oil goes to a select few, with Italy at the top of the list. Further, Libya's oil is a particularly good variety, making "one-to-one" swaps with, say, Saudi oil, an unrealistic proposition.

Finally, how many central bankers really know their way through the merciless world of Big Oil?

My guess is that Geithner will sing a different song once gas reaches four dollars per gallon. That was the price that sank John McCain's presidential run. Neither the current Treasury secretary -- nor his boss, the President -- wants to experience what the Arizona senator did in the late summer of 2008.

The photo shows Geithner (extreme right), Federal Reserve chairman Ben Bernanke, and Representative Barney Frank, in presumably happier times.

Oil Lake

Many years ago, I taught Russian refugees. Many related tales of unfathomable catastrophes, including the Chernobyl disaster. One of my students had led the helicopters that dropped sand into the nuclear facility. While radiation-related sickness dogged him in New York, he studied a new, often baffling language and wondered how he would become employed. He talked with me about his experience at Chernobyl calmly, far more so than most people could ever have hoped to muster.

Today, the United States confronts an environmental calamity in the Gulf of Mexico of numbing proportion. One expert claimed today that up to forty percent of the Gulf has essentially become an oil lake. While I doubt Gulf Coast residents will become flee America, I wonder if they will be as resilient as those Russians who left their once-fertile, now-poisoned land.