Was just thinking about the same things oldmanknows posted.
Can an economist forecast cultural self-discipline or lack thereof?
Deficits as far as the eye can see!
Oil. Peak oil production or not, both scientific and anecdotal "evidence" suggest that long term we're going to come up short. IMHO, oil prices will reflect that "reality" for the foreseeable future. Pushes costs up. Is our only solution jawbonig the Saudis?
Interest rates. Support the $, fight inflation with increases? Thus paying higher interest on our growning deficits. Or, stimulate the economy and exports by lowering them?
Is the "market" really smart enough to have a clue?
Are "we" really smart enough to know what to do?
Dubya's already told us it's just paper!
I sometimes think the Fed gets, together, serves up coffee and "waffles", admits we're screwed, flips a coin, then spins their response based on the toss!
Things are either going to improve or they're not. And, the Fed will prepare their waffles for their next meeting. They'll eat whether we do, or not.
If you put a gun to my head I would say BKT, but since I've exited all my leveraged bond CEFs(including munis), many held for over a decade, it would be a lukewarm recommendation at best.
In the long term the "oil problem" is self-correcting. As the price goes up people will consume less and look for substitutes. That's already begun, to some extent -- SUV sales are down, etc. The problem is that there can be lots of pain between now and the long-term outcome (you know the old Keynsian saw, "in the long run we are all dead").
The game the Saudis are playing is to keep oil tight enough to maximize profits while keeping the price just low enough not to spur major technological or socio-economic shifts away from the current oil based economy. They've been pretty successful so far.
As you know Dubya's trying to jawbone the Saudis. But I bet that as a good oilman, he's more worried about the possibility of high prices causing a shift away from dependence on petroleum than he is about you and me paying 3 bucks a gallon.
The best solution to oil and everything else you reference is the Marketplace. If we continue to maintain money supply discipline, and continue to feel oil a priority purchase, it will serve as a cap on the inflation of all else in the economy until an equilibrium is reached where the demand for alternate sources and conservation get real. At that point we have the opportunity to lead the world in development of both areas. I guess that's a sort of behavioral forecast from economics principles.
Captain, as always, I appreciate your responses.
To my questions you responded,
<The best solution to oil and everything else you reference is the Marketplace.>
My follow-up questions are:
1. Which marketplace?
a. The marketplace that valued the NASDAQ at 5000+ or the one that values it at 1900?
b. The marketplace that kept oil at the pump at $1.50 here while it was $4.50 in Europe? Or the one that prices it at $2.50 now?
c. The marketplace that valued CSCO at $80, SUNW at $70? Or the current marketplace that still questions whether they're overvalued at $20 and $4?
d. The marketplace that spawned a new industry of talking heads that assured us "it's different this time" or the one that now spawns gloom and doom predictions?
e. The marketplace that demanded performance, performance, performance and, thus, gave us Ken Lay, Bernie Ebbers, and Hank Greenberg? And now makes us question even the icon, Warren Buffett? Or, ???
Economic orthodoxy and dogma demands that we accept the marketplace as a reflection of reality. I still question what that reality really is.
the thing that pisses me off is that yes, we could maintain money supply discipline, keep a handle on inflation and convert to alt. energy, but it won't happen on a schedule that maybe, you or I would appreciate. there will be the big lag time in all of this while each fatcat, politician and interest group work it so they get well. this lag time is always the big danger zone when it can all go south. there is no political will or balls, there's never "do the right thing". most of the people in power don't seem to care, they're all trying to fast track armageddon......Pres. Frist, indeed!
This may be one solution. Along with ethanol...
One of the local "lifestyle" reporters in CA did a show on somebody in CA doing the same thing. Where is the Dumbya's Energy Secretary on "veg oil"?