Why, in the year 2004, nearly 30 years from the 1970's, are we so dependent on oil for our energy, transportation and manufacturing needs???
It doesn't take a rocket scientist to know that as the price of oil continues to inflate, so will the prices of soooooo many products.
Why have we allowed ourselves to STILL be so freakin' dependent on oil???
The following is from the Business section of the New York Times.
As Oil Futures Set New Highs, Should Investors Start to Fear Inflation?
Published: March 19, 2004
It is the forgotten economic problem, one that virtually everyone assumes is a problem of the past, not the present or future.
Reports of surprisingly strong consumer and producer prices did not bother the stock market this week. Investors still remember that less than a couple of years ago it was deflation that seemed to be a threat.
It may be premature to worry a lot about inflation. But the world economy appears to be very poorly prepared for it, if it does arrive. And that fact alone may be a reason to pay more attention to inflation than it is getting now.
Consider oil prices. Investors have become used to the idea that there may be occasional price spikes, but that quotes will soon come down. A year ago, shortly before the Iraq war, spot crude peaked at $39.99 a barrel. But even then the market was forecasting $27 oil a year later. It is a year later, and the price for April delivery is about $38. While the market still thinks prices will fall, the one-year future traded above $32 this week, its highest price ever.
Oil is not alone. The Reuters CRB index of 17 commodities is up about 20 percent over the last year and nearly 40 percent over the last two years. The last similar two-year move before this year came in 1977-79. Then everyone was terrified by inflation; now almost no one is.
What people are worried about now is terrorism. Terrorists seem to hit economies that are already weak. In the United States, a recession had begun months before the Sept. 11 attack, although most economists did not know it at the time.
European growth in 2004 was forecast to be the weakest among the world's regions even before the Madrid bombings. Ian Stewart of Merrill Lynch notes that only in Europe has the consensus growth forecast declined over the last year. Now, with Spain reeling and threats of attacks in Italy and France, a decline in tourism could end the fragile European recovery.
Unlike Sept. 11, which briefly seemed to bring the world together in horror, this attack is stoking antiforeign sentiments. To the anger of Americans, some Europeans see safety in not being too close to Uncle Sam.
The general rise in suspicion of foreigners is likely to fan protectionist sentiments, which were on the rise anyway. The American election campaign has included denunciations of job-exporting "Benedict Arnold C.E.O.'s,'' as well as calls for tariffs on Chinese goods unless China allows its currency to appreciate. Such moves could end, or at best ease, the deflationary effect of Chinese exports.
To be sure, we are not back to the bad old days. Part of the rise in commodity prices reflects the decline of the dollar, particularly against the euro. And even in dollars, the Reuters CRB index is 17 percent below its 1980 peak.
But the sheer confidence that investors and policy makers seem to have about inflation may in itself be reason to worry. A quarter-century ago, the consensus was that inflation was likely to run out of control forever, as global growth strained supplies of natural resources and drove prices up. That theory was discredited in the 1980's but now, as China booms, its increasing demand for commodities is one reason prices are rising.
If inflation does become a concern, the traditional medicine of higher interest rates may not go down well. In the long run, debtors benefit from inflation by paying back money worth less than the money they borrowed. But there will be immediate pain for homeowners with variable-rate mortgages and for the American government, which borrows heavily in the short-term market.
Higher rates would deepen government budget deficits even as they could cause consumers to cut back. They would not be good news for growth.