This past summer, President Joe Biden attempted to alleviate the inflationary pressures by urging the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, to increase oil production. Unfortunately for the administration, the cartel rejected his pleas, continuing to move ahead with its original plan to boost output. But Biden may have been given a temporary lifeline from China as the world’s second-largest economy tries to rein in commodity prices by adding crude oil to international energy markets.
Red Dragon Tosses a Hail Mary
China’s National Food and Strategic Reserves Administration recently announced its first public auction of state crude oil reserves to a limited number of Chinese refiners. The pumps will occur in phases, and the injection of crude will be utilized for integrated refining and chemical plants. Officials say these efforts will “better stabilize domestic market supply and demand, and effectively guarantee the country’s energy security.”
The news sent West Texas Intermediate (WTI) crude futures plunging as much as 2%. However, because the agency did not outline volumes or a timeframe, many market analysts share the opinion that the sales already took place. Goldman Sachs, for example, argues that an auction of 22 million barrels happened in August. ING thinks the announcements confirm both previous sales and alludes to auctions in the future.
According to The Wall Street Journal, President Biden and Chinese President Xi Jinping held a Sept. 9 evening phone call to ease hostilities. Whether the conversation consisted of crude talk is unknown at this point, but the broader financial markets maintained an upbeat tone following the discussion. U.S. crude prices surged 2.3% at the end of the Sept. 10 session, lifting the year-to-date rally to 44%.
Financial Armageddon Rains on Washington?
Tick tock. Is the day of fiscal reckoning finally upon the United States economy after years of reckless abandon of the public purse? Treasury Secretary Janet Yellen is certainly warning Congress to get its act together and raise the debt limit because her department is running out of extraordinary measures that could lead to devastating consequences.
Yellen penned a letter to House Speaker Nancy Pelosi (D-CA), telling her the federal government failing to meet all its obligations would cause “irreparable damage to the U.S. economy and global financial markets,” adding that any delay would diminish business and consumer confidence and impact the nation’s credit rating.
Speaking to reporters shortly after receiving the letter, Pelosi assured the public that Democrats would not risk “the full faith and credit” of the U.S. government. She also confirmed that Democrats would not use their $3.5 trillion reconciliation spending measure to add a provision to raise the government’s borrowing limit.
While Pelosi believes it is necessary to increase the debt ceiling, Republicans are not ebullient over the likelihood. Senior Republicans in the House and Senate assert that the GOP should not be responsible for kicking the can down the road and ensure the next generations erase the current level of red ink.
The private sector is worried, with JPMorgan Chase CEO Jamie Dimon warning that a real default “could cause an immediate, literally cascading catastrophe of unbelievable proportions and damage America for 100 years.” It would, says Mark Zandi, chief economist at Moody’s Analytics, initiate a “financial Armageddon” and threaten the stability of the international financial system. Isaac Boltansky, director of policy research at Compass Point Research & Trading, thinks it is “uniquely childish” for both sides of the aisle treating this like a political football.
Federal Reserve and Associates
It looks like a couple of Federal Reserve officials became quite the bulls in the aftermath of the first wave of the COVID-19 pandemic. They might have understood that when the central bank prints $5 trillion, the freshly created money will venture to Wall Street and make investors’ dreams come true – as well as their own.
Dallas Fed Bank President Robert Kaplan and Boston Fed Bank President Eric Rosengren issued apologies, expressing regret for executing multi-million-dollar stock purchases, giving the appearance of conflicts of interest. Kaplan and Rosengren plan to reinvest some of the money into passive index funds or hold cash. In addition, they each committed not to trade stocks while serving in their positions since they wanted to avoid even the slightest appearance of conflicts of interest.
Roberto Perli, a former Fed economist, told Bloomberg, that this showed “poor judgment” which ultimately affected the institution’s public image. “Good that [Kaplan] and Rosengren said that they won’t trade again as long as they are presidents. But the damage to the institution is done,” he noted.
The so-called independent institution already dismantled its reputation after bailing out Wall Street, diminishing Americans’ purchasing power, and facilitating the abhorrent behavior in Washington.
Read more from Andrew Moran.