Oct 06 2008

One October Surprise – Oil Prices

Published by at 9:10 am under 2008 Elections,All General Discussions

One of the most nagging economic issues of the year has been gas prices at the pump. It is arguably one of the prime reasons so many people finally sunk financially and started losing the their homes. It is hard to keep making money when the cost of getting to and from a job is high, or your job was eliminated because of high energy costs. The do nothing Democrat Congress has cheered these high prices (that is the green answer to energy, raise the price) and done nothing to address the problem. 

Now with oil prices dropping rapidly there will be an interesting sigh of relief across the nation as the prices at the pump go down. And everyone will know it had NOTHING to do with the Democrats, no matter how many times they run to a microphone and claim otherwise. It will be interesting to see how this plays out against the election dynamics.

5 responses so far

5 Responses to “One October Surprise – Oil Prices”

  1. gwood says:

    Perhaps the biggest plus lies in the effect lower crude prices will have on the mullah’s tenuous hold on power in the world’s foremost terrorist-sponsoring nation.

  2. kathie says:

    Russia, Iran and Venezuela will not be very happy.

  3. WWS says:

    If you understood the reason behind the dropping oil prices, you wouldn’t be so relieved. Oil demand has close to a 1 to 1 relationship to general economic activity. With world economic activity now poised to drop 10% – 20% over the next 6 months to a year, oil demand is projected to drop accordingly.

    This is why the Great Crash of ’08 is picking up intensity today.

    Falling demand means falling prices – which, by the way, is exactly what a great depression is all about. This is just another symptom of a process that is already well under way.

    Inflation is easier to deal with than deflation because when prices go up, people get poorer but employment stays high. The worst aspect of a depression is that falling price levels destroy the employment base as every industry that depends on credit and rising prices collapses. (as happened from 1930 – 1932) This is what began happening in a widespread way about the beginning of September. The Treasury and the Fed are attempting to hyper-inflate the currency in a bid to counter-act the wave of deflation; this is what the $700 billion bailout bill and the other, less well known measures being taken are all about. This is why when that bill was finally passed the theme was “the more the merrier”.

    You can decide what the chances a hyperinflationary monetary policy has at this moment in time. But unlike those who decry, I think it’s worth the try – without these efforts, our economy would have collapsed 2 weeks ago. Now, we’ve put off the collapse for maybe 6 months.

    But we don’t have the power to stop it anymore. If you think otherwise, consider the fact that every economy in the world is nosediving at the same time. The Europeans are in as much trouble as we are, and the Chinese, Indian, and Brazilian markets are crashing. You may ask, has there ever been a time when every economy in the world crashed simultaneously, with no winners anywhere?

    Why yes, it has happened before. I think you know when. And it’s happening again.

  4. Phil-351 says:

    WWS, I agree with your historical perspective, but just want to point out that crude oil prices were also hyper-inflated during the course of most of this year. The current price of about $90 a barrel is still inflated from the same period last year. In my mind, oil prices ‘bubbled’ up out of it’s 1-to-1 relationship with inflation, and is just beginning to settle back down to it.

    But, the bubble is part of the reason we’re having a global economic slowdown. With the relationship between oil prices and inflation, the bubble has caused worldwide slowdowns, and the following dip will be necessary to bring it back into balance. How far will it dip is the biggest question. I’ve taken to a ‘hold tight to what you have’ policy, and will not be making any big money decisions until things balance out again.

  5. WWS says:

    I agree that the bubble may have helped start the slowdown. But it was equally a symptom of the much larger credit bubble, which now seems to have been the true driving force behind most economic activity for the last 5 or 6 years. That is what is now unwinding, probably all of it and then some. What’s perverse is that, like some unbelievably massive Rube Goldberg machine, every action now engages several other reactions resulting in a cascade. The entire world now looks to be stuck in an accelerating negative feedback loop.

    Example – housing default rates trigger instability at major financial institutions, which triggers fears of failure, which causes the LIBOR rate to soar to near all time highs. (currently happening) Many, if not most adjustable loans reset with respect to LIBOR rates, therefore housing default rates have begun to accelerate as the crisis accelerates. As default rates increase, the cycle begins all over again at a higher level of intensity. But now it’s not only housing, it’s also anything else dependant on LIBOR rates, such as automobiles, business expansion, and anything requiring credit. The credit crisis becomes a black hole that sucks every piece of the economy into it. Not even governments are immune, as California recently revealed when it asked for a $7 billion Federal loan just to make the next payroll.

    At some point, probably already past, the causes of the crisis cease to matter as the crisis becomes self generating and self reinforcing. This is what is often called a death spiral. Governments like to think they have the power to break this because no one wants to consider the consequences if they can’t.

    I think it’s time to consider those consequences.