The former Chairman of the US Federal Reserve, Alan Greenspan told the audience at the Annual Caribbean Tourism Summit gathered in Washington D.C. that despite the problems, tourism by its nature is on a long-term upward trend. He assured delegates from 33 Caribbean nations that Americans would continue to travel to the Caribbean in increasing numbers.
Greenspan forecast that “what we are seeing with respect to globalization is an ever- increasing breaking down of barriers. There is an inevitable trend towards the sovereign barriers coming down and people moving”, he said. Even with the rise in the price of jet fuel, remarked Greenspan, the real cost of transportation has been going down. He forecast that technology and advances would keep recreational tourism going. “When you are dealing with an industry with momentum in an upper direction, you can absorb shocks and come back,” he said. But he made the point that travel for the first quarter of 2008 is at levels similar to 2006, despite all the problems.
Greenspan attributed the spiking price of oil to speculation. He said that prices initially rose when analysts foresaw that the actual investment in drilling and infrastructure to ensure the required levels of crude supply remained flat, and thus the reserve buffer was being eaten into, which moved prices up. “We have had a very dramatic rise in demand to hold inventories, but the supply of inventories is growing very gradually, and therefore prices have taken off,” he said. This spurred the investment community to get involved and hold inventories for three to six years into the future.
He said that speculation was good, because it contracted consumption for the first time. He explained it removes the peak of what the price of oil otherwise would have been.
Another advantage is that by getting prices to move off faster, we are getting a contraction of consumption for the first time, and the ultimate price at which oil would have risen if there had not been the contraction.
“If you took speculation out, prices would rise slower but when you ran into real serious problem when the buffer would go to zero, they would zoom up,” he said.
He forecast, “We are going to see ever-increasing aviation fuel prices, ever more efficient jet engineers, and seeing as there is a substantial demand for exotic metals in jets and engines that save fuel, eventually we will get the per mile cost down.”