Slippage

Two items in the April 23, 2007 Wall Street Journal that, taken together, suggest the United States' slippage as unipolar world power:

First, the price of West Texas crude oil -- long a standard for gauging the price of oil, has drifted further and further from the price of other, similar, grades of crude oil, leading some "market participants", quoted by reporter Ann Davis, to call West Texas crude "a broken benchmark". As a standard, traders used contracts for the West Texas Intermediate (WTI) to hedge against overall fluctuations in oil prices. If that price no longer reflects world prices (e.g., oil of comparable grade from the North Sea, or Middle East oil), then its value as a hedging device wanes. Part of the price disparity is due to temporary factors that have created a glut of oil at the delivery point used to measure the oil price -- a terminal in Cushing, Oklahoma -- which, over time, should be corrected, and the price come closer to the overall world price. But Middle East production is some 20 times West Texas production (per the article, "West Texas Oil Falters in Its Role As a Benchmark"), and so the West Texas oil trading contracts do have the same meaning as a proposed new benchmark for Middle East oil, to be traded on the Dubai Mercantile Exchange (as opposed to the New York Mercantile Exchange, or NYMEX, where the WTI contracts are traded). It should be noted that NYMEX is part of the joint venture that has formed the Dubai exchange.

Second, the article "An Unrelated Story: U.S., Global Stock Markets Increasingly Take Separate Paths" describes how the U.S. stock indexes have been trailing important stock indexes in other markets. The Dow Jones World Index is up 8.5% this year, while the S&P 500 is up "only" 3.9%. This de-coupling would suggest that the U.S. economy is no longer the big dog, with the other national economies following in tandem. Instead, these other national economies are beginning to show their independence. Half of the world's stock market capitalization -- the value of the shares traded on those markets -- is overseas now, according to one fund manager quoted in the article.

Perhaps a better indicator is the value of the U.S. dollar, which according to the April 28 WSJ, is at its lowest point ever against the Euro. Compared with the Federal Reserves Trade-Weighted Index, the dollar is at its lowest point since it created the index in 1973 (although not as low as it was in 2004 if inflation is taken into account).

jd