A Christian Liberal is NOT an oxymoron.

Posted by XT on June 6th, 2008 in US News

Oil prices took off today - more than $10 a barrel. See if you can spot the culprit:

Oil prices had their biggest-ever jump on Friday, after a senior Israeli politician raised the specter of an attack on Iran and the dollar fell against the euro.

The gains on Friday capped a second day of strong gains on energy markets, and fueled suspicions that commodities might be caught in a speculative bubble.

As I’ve said before - of course, there is a speculative bubble. That’s just the way this commodity works. The question is whether or not the price accurately reflects the prospects of 100% oil deliver in six months as well as the value of the dollar in six months.

Of course, the Dow droopped a load.

The real culprit here, though, is rising unemployment.

The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday.

Economists construed the weak monthly jobs report as an indication of the pain assailing tens of millions of Americans amid an economic downturn that most experts assume is a recession.

The labor market is continuing to deteriorate, eroding the size of paychecks, just as gasoline and food prices surge, and as the declining value of real estate erodes the wealth and credit of many households.

In a free-floating currency exchange, the value of currency is roughly analagous to the growth of its economy. Bad economic news, then, automatically rachets down the value of currency. Think of a dollar representing a share of the American economy and you begin to understand this phenomenon.

Of course, with oil being priced in dollars, the falling dollar automatically raises the price of oil. With the pain of high oil prices already pulling all of the excess out of the American economy, a rising oil price automatically reduces the value of the dollar - but not by as much as the original action. It’s a small feedback loop that pushes the price up slightly more than would otherwise happen. Of course, right now, every little bit hurts a whole lot.

The price of oil also effects the employment market. If you are going to sink $80 million into a new building, part of that figure reflects the fuel costs of labor and construction materials. When those fuel costs rise, the cost of building rises - maybe enough where the financier decides to wait a bit, hoping the fuel costs will fall again. A data processing company that turned 5% profit last year may be looking to hire someone new to expand their business - until fuel costs (air conditioning, electricity, etc.) rise 20%. Better to wait a few months and see what happens - or just make employees work harder.

All of this is a long way of saying what the headline says - it’s bad. But it’s going to get worse.

Technorati Tags: Oil prices, Iran, speculative bubble, Dow, unemployment rate