Publications: Notes at the Margin

The Biden Put (October 24, 2022)


President Biden has followed the example Alan Greenspan set in 1987 when the former Federal Reserve chairman cut interest rates to reverse the largest one-day drop in the Dow Jones index ever. He then lowered rates several more times to keep share prices high. His strategy became known as the “Greenspan put.”


President Biden has done the same in the oil market by assuring a floor price for domestic producers. According to his recent statement, the US will buy oil for the Strategic Petroleum Reserve if prices fall toward $70 per barrel, which gives producers a financial guarantee.


The Biden put, in short, creates conditions that allow US shale producers to operate freely in an environment insulated from the actions of an international oil cartel. Indeed, US producers can profit whenever exporting nations lift prices above the Biden put price while enjoying protection from any exporter action to drive prices down. Thus, US firms would be encouraged to boost production from short-cycle fields quickly. At the same time, the environmentalists’ urgent goal of reducing harmful emissions rapidly would not be compromised because fracked well production declines quickly and does not continue for decades as traditional wells do.


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