the contrarian - "EVERYBODY LOOK WHAT'S GOING DOWN"

Yes, it's oil, but maybe we shouldn't get too excited. 

Spurred by an increase in the value of the U.S. dollar and a moderation in the rhetoric over the Iran situation, the price of crude has swooned by over nine dollars per barrel in the past two days.  This is bringing a very welcome degree of hope to drivers struggling to digest the price at the pump which, nationally, reached an all-time high this week.

And there are reasons to believe that the anticipation of a further reduction in the cost of oil may be justified.  For example, the data suggests that the burden it has imposed on the world may have been exaggerated by manipulation and by speculative investing, a possibility that likens the oil crisis to the bubble that has now burst in the real estate sector.

In this regard, columnist and automotive expert Ed Wallace has followed up his two earlier articles on Business Week's Viewpoint website with a third article two weeks ago. His first two articles had clearly shown that there was ample oil avaiable and the global supply and demand data did not justify the price increases we had experienced.

In his most recent article, Wallace summarized the events of the previous week that impacted on the oil market. Remarkably, his analysis showed that what was reported in that one week added nearly 2 million barrels per day to the excess oil capacity already on the market. This additional surplus was derived from both cutbacks in demand and from increased production from the major oil producing nations.

Wallace also reminded us that current statements out of the Bush administration calling for increased production are not unlike the red herrings we heard during the California energy crisis seven years ago.

At that time, for example, Dick Cheney told PBS's Frontline on 5/17/01 that California's soaring electricity prices were the state's own fault, and were caused by a lack of supply and "unwise" regulation.  In time, of course, we learned that the true cause was the pattern of criminal manipulation engineered by Enron.  As Wallace said, we came to realize that Cheney's statement and others like it were nothing more, apparently, than the administration's attempts to "deflect any blame for California's suddenly stratospheric electrical costs away from their Houston friends."

So we would be well advised, according to Wallace, to put little reliance on anything the Bush administration has to say, these days, on the subject of energy.

But that does not necessarily mean that the current, artificially-stimulated oil price is destined to collapse anytime soon. Despite the conflicting indications provided by the data as pointed out by experts like Ed Wallace, the largest body of economic thought on the issue today clearly sees an oil price that will relentlessly continue to climb, with no light at the end of the tunnel.

For example, Tom Kloza, chief oil analyst for the Oil Price Information Service, a leading markets-tracking company, was quoted in yesterday's L.A. Times as saying that oil prices "might drift a little lower this week, but we'll be higher a month from now and oil will be above $150 before the end of the year." Kloza's view represents what might be called the conventional wisdom of the day.

This raises the possibility of an unthinkable scenario. Many of us believe that what has been happening is just temporary and that - like a bad dream - it will soon go away. After all, didn't the crisis in the seventies subside?

But what if it doesn't? What will it be like if the prices we are seeing for oil, as well as for many of our agricultural products and for some of the metals, remain in the stratosphere and even continue to climb?

It doesn't take a great deal of intuition to realize that such an eventuality would cause a drastic change in the world as we know it, particularly for our children and grandchildren.

Just imagine the long term impact.  Many aspects of the type of life we have known would be turned upside down.

Suburbia, for example, might slowly die from the outside in as its inhabitants gradually succumb to the transportation costs associated with long commutes. At the same time, municipalities would be hard pressed to solve the dilemma with mass transport systems that neither they nor their taxpayers could afford.

Another obvious area of change would be in the transportation field itself.  People would increasingly tend to travel less and a significantly fewer number of transportation companies would survive. What would be left of the airline industry would revert to its second childhood, serving only the wealthy.

Mail and the movement of both packages and products would be subject to such significant cost increases that alternatives would have to be found.  Messages would be conveyed largely through electronic means, including the internet. And every urban area would become more diversified and less dependent on the shipment of products from elsewhere.

Under the circumstances that would exist with a continuing increase in global shortages of fuels, foods and metals, it is easy to imagine a world where people would live much simpler lives, close to their work, often walking or traveling by bicycle, and growing much of what they eat, either on their own properties or on communal lots. A broken item that would today be discarded would be taken to one of the myriads of repair shops that would spring up.

Some observers see much more far reaching consequences. Nicolas van der Leek, a prolific correspondent in the energy field, predicted in an OHMY News article entitled "The New Oil Order" on 6/30/08, that, among other trends, we could expect to see a reversal of globalization, the demise of capitalism and an increase in civil unrest.

In addition, according to van der Leek, there would be a fairly rapid transformation of the Fortune 500 list with many deletions, additions and changes in rankings.

Whether the global crisis that exists today turns out to be a temporary situation that will eventually return us to normal times, or whether it will become a long-term burden that will turn the world we've known on its ear, one thing is becoming increasingly clear.  We are dangerously near the tipping point.

On Saturday, Bob Herbert, writing in the New York Times, said of the economy: "...the anxiety seems more intense than the usual concern for a cyclical downturn. Something fundamental seems to have gone haywire."

Herbert cited a recent book entitled "A Letter to America" by David Boren, a former U.S. senator, currently president of the University of Oklahoma.  As Herbert said, Boren's "sense of alarm in the opening paragraph could not have been clearer."

Boren's book begins with these words: "The country we love is in trouble. In truth, we are in grave danger of declining as a nation. If we do not act quickly, that decline will become dramatic."

As we proceed through our daily lives struggling as individuals to deal with the realities that confront us and as we become increasingly numb to the repetitive nature of the downward spiral that swirls around us, we must not lose sight of the fact that time is running out.

No one nation, or single leader, can solve the global problem. Domestically, greed-fueled pursuits can be put aside and new priorities can be established.  But to be effective, the United States, which is still the world's strongest nation, must use its influence to inspire an international effort to bring conditions under control.

Failure to do so in a timely manner may bring catastrophic consequences.

Dave McGill, News Correspondent

Dave's column, "The Contrarian," generally published every Friday, to Gather Essentials: News will sometimes present a contrary view to various aspects of the news, or an alternate take on the conventional wisdom of the day, and will occasionally appear on another day of the week

Dave has been a senior officer of an eastern insurance company, involved in economic projections and investment strategy, president of a Midwestern mortgage banking company, and a financial consultant in Southern California, serving clients in the field of commercial real estate development.

You can find all of Dave's "The Contrarian" columns at: http://gather.com/thecontrarian...... Keep up with Dave's other postings and Gather activity by joining his Gather network - just click here: http://atadaskew.gather.com........ You'll find Dave and other News Correspondents, plus celebrity content and plenty of other News experts at News.gather.com.