Federal Reserve Chairman Ben Bernanke told congress today that he expects the economy to stay sluggish, and was extremely pessimistic about the price of oil in the future. Despite the the airline industry’s open letter to consumers claiming that speculators are driving up the price of oil and causing a commodities bubble, Bernanke doesn’t agree.
From the NYT:
Mr. Bernanke was especially pessimistic about any easing of energy prices, dismissing suggestions that they were being driven by speculation in futures markets. Instead, he said high energy costs reflected the markets’ recognition that demand was outstripping supplies.
“Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,” Mr. Bernanke said. “On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.”
Before Mr. Bernanke’s remarks, the Labor Department reported that wholesale prices rose 1.8 percent in June, making for the fastest 12-month inflation rate in more than a quarter century.
Economy Will Stay Sluggish, Bernanke Tells Congress [NYT]
(AP Photo/Susan Walsh)
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Maybe Ben has a “Oil Price Shrink Ray” he could use on the pumps?
Or more likely Big Oil had one and it’s been buried along with the infinite motion machine and the 200 mpg car.
Folks, we haven’t seen anything yet. Prediction — gasoline by $5 this winter, and maybe $6 gallon next year.
@IamNotToddDavis:
uninformed, I think not.
The current problem with solar and wind farms is the initial cost. After the initial cost, except for maintenance, the power is essentially free.
the states has vast areas that are hot deserts and a large solar / solar chimney would produce electricity that could be used to produce hydrogen. This hydrogen could be pipelined to distro and also used to produce electricity during the night when there is no sun.
My point is that bushie has bankrupted your country on a pointless war. If he had used that money and you were in the same debt range, you guys would have massive power that could be expanded upon. And it would start to par for itself.
People that say that we cant harness these sources of energy are the same people that think canada’s health care is not better then the system in the states. In other words they are the ones uninformed.
@MissTicklebritches: “Mr. Bernanke was especially pessimistic about any easing of energy prices, dismissing suggestions that they were being driven by speculation in futures markets. Instead, he said high energy costs reflected the markets’ recognition that demand was outstripping supplies.”
All Mr. Bernanke did, was deliver the oil Company’s Advertising Department’s line: “Oil Prices Will Never Be The Same Again…” It’s been such an effective add campaign, that you hear it out of the mouths of anyone willing to expound on the subject. First, we all have to agree that the so called ‘Gas Market’ is a false market. You have to acknowledge that it is companies like Exxon that actually set the price at the pump, or we have nothing further to discuss. Prices rising and the dramatic effects on the American economy is a calculated plan and risk that Oil Companies had made long ago. The simple answer ‘why’ is so that they the oil companies can open up oil drilling in America, simply to increase and sustain profits for as long as they can.
The fact that the president of OPEC can stand there and say he’s not responsible for what Iran does, or speculate as to how high the cost of wholesale prices for oil will be, is only to his advantage. The higher the price of oil, he can add more to his collection of small countries.
The fact is that oil companies can set prices all the way back down to the 1960s, or beyond, should they all of a sudden develop some sort of a conscience. It is because of PAC money, that you have every politician out there with charts & diagrams pointing out how we need to open up America’s land closed to drilling. (PAC money explains a lot of what is wrong with America, but I digress…)
Now, as to the answer of what does actually work for alternative power… If Solar didn’t work, then everyone and their Grandmother in Germany wouldn’t be starting up solar farms. If Wind-farms didn’t work, then there wouldn’t be a sea of windmills in the California desert lighting up the Coachella valley. However, those are only a part of the answer. The way out for America is fuel cells. Power companies, (Also a false market.), are so worried about fuel cells, that they’ve been buying up any and all companies having anything to do with the technology. Then they repackage fuel cells as being a great way for backing up electricity when the power goes out. About 5 years ago, you could actually buy a fuel cell for between $3k and $8k per unit. They ran off natural gas, or LP, or eventually could even run off sea water. The buy product from fuel cells is distilled water, which would go a long way to helping with our Nation’s drought problems. Also with fuel cells, you no longer have an issue with terrorists, or mother nature bringing down the power grid. If there is no power grid to bring down, there is nothing to attack. Fuel cell technology could be the next thing for America. It could raise us out of the depths of hell here and move us into the new millennium, like we should have been doing. With Fuel Cells you can power your home, your auto and then some… Of course you all can keep reciting ‘add slogans’ and argue over corruption, but there are ways to fix things. Ending PAC money and making Politicians campaign in their own home districts would be one way. The other is fuel cell technology. By the way, I have nothing to do with fuel cells, or any part of their sales, or production. I’m simply someone who watches C-Span for fun.
@Wally East:
Annual inflation has been underreported by removing the effects of food and fuel from the calculations. While not 15% it is far more than 3%.
You also need to remember that just because the price has gone up 3x doesn’t mean the demand has gone up 3x. When a resource is critical the price becomes significantly higher when even there is even a small difference between supply and demand.
Global demand only needed to go up 5-10% to account for a 3-5x price difference. If demand was actually 3x what it used to be we’d be looking at $10-20 a gallon gas.
You mean, gas prices will continue to increase, just as they have since the existence of gasoline!?!?!?!
Seriously, when has gas ever dropped significantly for any prolonged period of time?
@wgrune: Regulation?!? No way, man, the free market will keep us safe. NO GOVERNMENT IN OUR NUCLEAR PLANTS!
@IamNotToddDavis: And since these technologies aren’t 100% sufficient at this absoulte second, let’s never spend another dime developing them into something useful. There isn’t one technology that is going to be able to replace coal. How about we develop a lot of regional solutions. If you say the sun isn’t reliable, I’d venture to say that you’ve never been to Tucson, AZ.
@MaytagRepairman: Demand increases, price increases. Just because there is increased demand for a commodity doesn’t mean we run out of the commodity. Where did you get that notion from?
Everyone in America needs to start thinking about how they’ll adjust their lifestyles when gas is $8-9 a gallon. Familiarize yourself with public transportation. See if you can get away with keeping the car garaged most of the weekend. Go for walks. Enjoy your home. You spent ridiculous amounts of money to fill it with the stuff you wanted, yet you run away from it every time you want to have fun? Netflix. Read books. Try the neighborhood places.
Of course, you’re not going to hear any of this from the administration.
@kable2:
The current problem with solar and wind farms is the initial cost.
No, the problem is that the wind doesn’t blow nor does the sun shine as constantly or as reliably as fossil fuel burns, or as nuclear fission heat steams, or as hydro power churns (hydro in the US is essentially maxed out at this point). So when the wind isn’t blowing or the sun isn’t shining, you have to create a back up system. Creating this back up system is yet another cost associated with using a “renewable” resource.
After the initial cost, except for maintenance, the power is essentially free.
No, it is not. See above.
This hydrogen could be pipelined to distro and also used to produce electricity during the night when there is no sun.
So we have extra power now? So much that we can “siphon off” some of this abundant reneable energy to “save for later”?
I’m not sure you understand the dynamics of power generation, because if you did you wouldn’t make this claim.
My point is that bushie has bankrupted your country on a pointless war.
The war has not bankrupted us, nor are we bankrupt. We have a $14 trillion economy. We are having some serious economic management issues, that’s for sure, but the issue isn’t that we are “bankrupt”.
If you are using “it’s Bush’s fault” as your line of reasoning then I am wasting my time attempting to explain this to you.
@hwyengr: ” If you say the sun isn’t reliable, I’d venture to say that you’ve never been to Tucson, AZ.”
Um, perhaps you’d care to explain where the sun goes for half of the day in Tucson AZ, or anywhere else for that matter? Or does the sun shine for 24 hours straight in Tucson?
Mr. Bernanke is just having a “mental recession.” Ben…more leadership and less whining. Close your eyes and just keep repeating to yourself “everything is fine, everything is fine.”
@IamNotToddDavis: Fascinating point about the sun going away for half the day. I think hwyengr’s point is that there are places where the sub consistently shines during the daytime.
The problem really is inertia — alternative energy sources need a kick-start (from subsidies and focus) because our industry is built for fossil fuels. Your wiki-graphs are a snapshot rather than a crystal ball. There is no certainty that the graph cannot shift away from fossil fuels.
Have you heard of T. Boone Pickens plan? It is remarkable because Pickens believes he can make money off of wind power. He’s not an energy activist but, rather, is completely profit driven. He’s also very successful in making money, which lends some credibility to the viability of his proposal.
Sorry I have no wiki references to solidify my points!
@nequam: sub = sun
@nequam: ” I think hwyengr’s point is that there are places where the sub consistently shines during the daytime.”
That is MY point though. He’s making it for me. Fossil fuels burn consistently throughout the day. Nuclear power can run the same no matter what time of the day.
If the sun ain’t shining (which it doesn’t at night) or the wind isn’t blowing, then you are back to square one. And in the world of electricity production, being “back to square one” isn’t an efficient option. You need constant load support. These sources do not provide this, therefore they are not efficient enough BY A VERY SIGNIFICANT MARGIN to compete with fossil, hydro, or nuclear.
Your wiki-graphs are a snapshot rather than a crystal ball.
Yes, but my point is that is you look at the “snapshot” over the last few decades, it gives us bearing on the future. And as I pointed out before, without subsidies, they wouldn’t even merit a slice of that pie.
Have you heard of T. Boone Pickens plan? It is remarkable because Pickens believes he can make money off of wind power.
Pickens fails to account for much of what has been discussed in this thread. His plan will not work.
He’s also very successful in making money, which lends some credibility to the viability of his proposal.
No it does not. Mike Tyson made a lot of money too, but I wouldn’t let him tie my shoes.
@IamNotToddDavis:
Thermal solar is the answer to your question. Solar energy is used to heat a salt compound to may hundreds of degrees C. That compounds heat is then used to generate power day and night.
It is a very reliable power source in the desert. It is technologically simple and has been deployed successfully in other countries first.
Wind technology has more complicated methods of getting beyond this limitation but they still exist.
You are really behind the times on your knowledge of alternative energy sources. Much has been done to address the deficiencies since the 70′s.
@IamNotToddDavis: Fossil fuels do NOT burn consistently unless you have a constant supply of them. You then have to pay for the transport of that fuel.
Perhaps we should go back to coal fired trains to move that east coast coal west?
Not to mention that the price of nuclear fuel has increased in recent times. As we race to construct more nuke plants that will place stress on the price more so. There is also a great cost for the proper storage and transport of nuclear waste. Since nuclear waste has to be watched forever those costs should not be minimized.
A true energy policy that will take this nation forward for the next 50-100 years will have to include enough forward thought to have regional renewable energy make up a large portion of our power grid.
Fossil fuel and nuclear fuels are both short to mid term band aids for a much larger problem.
@MissTicklebritches: On the other hand, I think Mr Bernanke has read David Lereah’s new book “Why the Energy Boom Will Not Bust – And How You Can Profit from It.”
@Techguy1138: “It is a very reliable power source in the desert“
The entire country isn’t a desert. Again, you need a constant source to match efficiency.
It is technologically simple and has been deployed successfully in other countries first.
Examples? I am interested in reading them. I don’t want you to think I’m peeing on the solar parade because I’m happy about it. I would much prefer to see solar power replace fossil fuels, but the facts that I’m aware of are very much against it. If you can present to me a link or proof that cost per megawatt would be economically viable to replace fossil fuels, or even remotely subsidize say -20%- then I would love to read it.
Wind technology has more complicated methods of getting beyond this limitation but they still exist.
Ask the Danes how “wind power” is working out for them. Reliance on having a continuous source has caused them to build standby generation capacity. This secondary capacity capital costs have economically sunk the wind farm. The capacity is too great to idle, but not enough to make a difference. So now the Danes are trying to sell expensive standby power into the EU grid. And losing money doing so.
Brilliant!
Much has been done to address the deficiencies since the 70′s.
Who said anything about the 70′s? I’m talking about the deficiencies NOW.
@IamNotToddDavis:
Solar thermal
[en.wikipedia.org]
Rolled out in Spain
[en.wikipedia.org]
The entire country doesn’t need to be a desert but if you think about all of the land between Louisiana and the Pacific Ocean much of it qualifies as desert.
You could generate a significant portion of the energy needs for 1/2 the country, if these were actually made.
Parts of CA and the mid-west are already doing well generating wind power.
NYC has already come up with a way to store large amounts of electral energy for later use
[ntlsearch.bts.gov]
Of course there is also the use of offshore wind power that does blow 24 hours a day.
The investment that the Danes have made in wind power WILL pay off. Even if you need standby generation they have a power source that operates independently of external energy prices.
Roads also cost a lot to make an maintain. They fail to produce an immediate profit but they have an immense value.
The US wound up being a world power because an entire efficient energy infrastructure. Even if energy sources have drawback it makes much more sense to develop them because the existing infrastructure is inadequate for the growth, or maintenance, of this nation. It costs a lot more to pay someone else to solve your problem.
@Bladefist: Right again. I can’t understand why the Fed has been so scared to hike up interest rates. Make the $ worth something again in relation to other currencies. It wasn’t too long ago the Euro was worth 50 cents here.
@Techguy1138: The numbers you provided support my argument. By your own links if I take a generous estimate/average of solar electricity production I come up with anywhere between about 25 to 50 cents for a kilowatt hour. And admittedly that’s a rough average, not the peak efficiency.
Check here for my math-
[www.solarbuzz.com]
For the same average of a kilowatt hour of gasoline the costs are between 2 and 5 cents; for coal it’s 1 to 4 cents.
And let’s remember, I can burn coal whenever I want, so I don’t need a back-up power station for supply/demand fluctuation.
Again, I would love to see this change, and perhaps advances in nanotechnology will allow this to happen. But right now, and in the next several years, this isn’t changing.
You could generate a significant portion of the energy needs for 1/2 the country, if these were actually made.
The cost of paving what would be roughly the size of New Jersey with solar panels in order to meet “a significant portion of the energy needs for 1/2 the country” is what one would call “cost-prohibitive”.
“Parts of CA and the mid-west are already doing well generating wind power.“
How much and when? Wind power is more cost effective in cents per/KWH (around 4-10 depending on the source), but it has a host of other nontrivial application issues such as the cost to build and maintain these enormous turbines.
The problem with both of these sources is that we can’t control the load. Once it’s on, it’s on and we can’t increase the load by moving the earth closer to the sun or make the wind blow faster. Check out this from last year in the UK-[www.thisismoney.co.uk]
The investment that the Danes have made in wind power WILL pay off. Even if you need standby generation they have a power source that operates independently of external energy prices.
This remains to be seen. The Danes have invested not only a huge amount of money but also a huge amount of their productivity in wind power. That’s why most of the turbines being built in Europe are by Danish companies.
To wrap this up from my perspective, I will make the philosophical argument that McCain has made repeatedly about ethanol- if it can make it on its own in the open market I’m all for it. If it requires massive subsidies to compete than it’s not worth it in the long run. The point is I don’t want our government to mess up our energy problems any worse than they already are. And one quick way to do that is to let them distort the market.
“The cost of paving what would be roughly the size of New Jersey with solar panels in order to meet “a significant portion of the energy needs for 1/2 the country” is what one would call “cost-prohibitive”.”
Solar panels(photo voltaic) are only good for small scale power installations such as homes or business. Thermal solar is more suited to mass power generation.
There NEEDS to be some distortion of the market to create an infrastructure, that is the purpose of government.
Rail roads and power companies were granted land rights and the road system was government sponsored. Those systems are too costly for private industry to create entirely on their own.
Power generation and distribution are critical infrastructure for the nation just as much as sewage or water.
Each region of the nation has geographical features that lend it well to a particular type of energy generation. All of them will have to be explored to create a national energy plan. The US can not maintain any kind of leadership position without the development of new energy technology.
Letting the future depend on what is cheap currently is penny wise, pound foolish.
@MrEvil:
Yeah, but if the dollar rises in value, what will they do with all of those Ameros they’re printing in Mexico?
..or perhaps I’ve said too much..
@Techguy1138: Thermal solar is more suited to mass power generation.
Ok, what’s it in cost per kwh?
There NEEDS to be some distortion of the market to create an infrastructure, that is the purpose of government.
Whether or not I agree with this statement (I Don’t), I will ask that we don’t allow the government to distort an existing infrastructure. As I’ve noted above in the link from the UK, sometimes government distortion of an existing infrastructure actually make everything worse.
Which come to think of it, is exactly why we’re in this thread to begin with. Bernanke screwed up by distorting the market- keeping rates too low for too long- and this caused a dollar crash, thus making it cost more in dollars to buy oil=gas prices go up.
I agree with you that government is essential to promote the general welfare of our country, but not provide it.
John Sununu quoted from the following PJ O’Rourke article [www.weeklystandard.com]
I too believe that oil prices over the long term will continue to climb. Yes, there may be some spikes and dips, but the trends of rising global demand will continue to push prices up. The rate of growth of demand outpaces the growth in supply.
Wind and solar can play a part in the energy mix but are expensive, not very efficient, there’s a long waiting list since manufacturers can’t keep up with the demand for wind turbines, siting is an issue because nobody wants wind or solar facilities near their homes and at this time, there is no inexpensive storage capability to handle the electrical demand when the wind isn’t blowing or the sun isn’t shining – utilities will still need generating capacity which can be turned on/off quickly – e.g. diesel or gas turbine driven generators.
I think the future will be a largely electric economy, however there remain things that will still need some sort of petroleum fuel – airplanes, heavy long distance trucks, farm equipment are possible examples.
If you want some interesting charts to look at regarding energy history, usage of various sources of energy and trends, take a look at this:
[www.eia.doe.gov]
This is the newest available (2006). Enjoy!
@chrisjames: It’s rather amusing that anyone is asking the Chairman of the Fed, of all places, for sources. Anyone suggesting that a Fed Chairman, of all people, lacks data demonstrates that he’d lack the intellectual firepower to parse thru said data, even if it was fed to him in Sesame Street-sized nuggets.
Is that the new patented GOP response? Asking, “Show me your sources!”? I see it popping up more and more often in the comments, generally from people incapable of finding their own damn sources, let alone understanding them.
I’m fine with nukes so long as the spent radioactive material is stored next to every pol and comments-writer’s homes that think that this absurdly subsidized, mind-blowingly toxic technology is a great idea.
Let’s throw the hundreds of billions of dollars the nuke industry has received to date and throw it at alternative energies and see what miracles happen.
“Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,” Mr. Bernanke said.
AND YET OPEC SAYS THE OPPOSITE:
“We cannot raise output, whether it’s OPEC producers or others, unless there really is a demand on the world market,” said Chakib Khelil, OPEC President. “Now, you know that demand has shrunk this year and continues to shrink, and so demand is not there to absorb supplementary production.”
WHO TO BELIEVE?
I don’t understand why so many think oil should be cheap in the first place.
compare the prices of gold and oil. An ounce of gold buys the same amount of gasoline it has for decades. This is how we know the problem is the value of the dollar, driven down by excessive government borrowing and inflation.
If the dollar were still pegged to gold, gas prices would not have changed.
@JessicaJessica: LOL! You really believe OPEC? They have monetary interest in keeping supply down and prices up. That’s the whole point they formed the cartel! So yes I do believe Bernanke over OPEC any day of the week.
Yeah, that’s the American spirit. Way to go Bern. Just sit there and say “Woe is me”. That picture of him just reeks “We can’t do it…We’re doomed”.
New energy solutions are being discovered, an extremely large oil field has been discovered in Brazil, oil is still plentiful. This isn’t the 70′s when the oil stopped flowing. I’m tired of politicians and news outlets trying to make us feel like it’s the end of the world.
Don’t buy into the fear, that’s how you are controlled.
So let me get this right: oil has its biggest single-day price drop in 17 years and it’s because demand actually dropped 4.4% in one day and not because speculators were told that demand will drop in the foreseeable future?
Jeezus. Guys, you can’t trust OPEC to give honest reasons why they’re not producing more oil, since its vastly in their interests to do the opposite.
And you Cross of Gold types, you DO realize that the price of gold is set in the commodity markets, right? That is, either way, the global markets will have a say on how much a dollar is worth, whether we have a floating or pegged currency? The Asian Currency Crisis was precisely that problem: nations had currencies pegged to an external value which their central bank couldn’t maintain. Do you want a repeat of that, only starring the US? YEESH take an Econ 101 class. Please?
And, jacking the US Prime would result in a higher value of the dollar, short term. However, when the US economy collapses into a Depression unseen since the ’30s results as a direct consequence of hiking interest rates, the value of a $US will – wait for it – drop like a stone. Leaving us where we are now, only with a ruined economy.
It’s a bit more complicated than something you can fit on a bumper sticker folks. Really.
@IamNotToddDavis:
“I agree with you that government is essential to promote the general welfare of our country, but not provide it.”
Then nothing could be more clear than government investment in energy policy.
I’m not saying that the government provide the energy buy instead create a permissible environment for large scale construction of alternative power generation and research.
Power generation is not a business commodity in the traditional sense. It takes decades to build and extend a sufficiently complicated system.
Private industry can only act as you stated, looking at todays KWph prices. By the time the price ratios have changed it is to late to begin investing in such technologies.
It is the same as building a city and then deciding it’s time to add a sewage system.
Only the government has the capacity to work in a way where large scale investments pay off after decades as opposed to the current fiscal year. There are plenty of examples of this happening since the founding of the nation.
@IamNotToddDavis:
“Bernanke screwed up by distorting the market- keeping rates too low for too long- and this caused a dollar crash”
I also think that this is only a small part of what is going on. What we have going on now is not a crash but a correction that takes into account the trillions in fake wealth that was ‘created’ during the real estate bubble coupled with the large US trade deficit,ever expanding national deficit and the international loss of faith in the US.
I don’t think bernake helped with low interest rates but the situation has roots in many other bigger issues.