Understanding Oil's Deadly Role in Recession Before It's Too Late 8 comments
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Oil prices doubled from mid-2007 to mid-2008, skyrocketing from $75 to nearly $150 per barrel, largely based on a wall of speculative money flowing into commodities futures. That was one of the major causes of the worldwide “Great Recession” that we have still not recovered from. It is important for policymakers to acknowledge this foundational truth in order to prevent the same thing from happening again and killing our recovery.
Two articles highlighted the deadly role played by inflated oil prices:
I would say that if there were a reason we had the global recession last year, it wasn’t just Lehman or the subprime mortgage problem; it was that when oil went to $145. That was a major, real trade shock negative, and a real disposable-income shock for the U.S., Europe, Japan, China and all the other oil-importing and commodity-importing nations around the world. That kept the world in recession when oil was at $145. Now, I feel that oil at $100 is going to tip the world into a double-dip recession.
Nouriel Roubini: The Coming Commodities Correction
Lara Crigger
Hard Assets Investor
November 6, 2009
Though it’s universally viewed as a crisis of the financial sector’s making, several voices (notably James Hamilton) have argued the recession that began last year had a lot to do with the sharp rise in oil prices over the preceding months and years. . . .
A feature in the draft executive summary of the IEA’s World Energy Outlook, which will be published Tuesday, revisits this argument and comes to a rather worrying conclusion.
It starts out keeping in line with the prevailing view: the run-up in oil prices from 2003 to mid-2008 played “an important, albeit secondary” role in the global economic downturn that took hold last year. Higher oil prices made oil-importing countries more vulnerable to the financial crisis, it says.
The feature concludes, however, on a somewhat stronger note.
The IEA points out that it had warned in 2006 that the effect of high oil prices from the preceding four years had not yet worked their way through the world economy, and that further increases in prices would “pose a significant threat to the world economy, by causing a worsening of current account imbalances and by triggering abrupt exchange rate realignments, a rise in interest rates and a slump in house and other asset prices”.
Did oil cause the latest recession? IEA weighs into the debate
Kate Mackenzie
Financial Times EnergySource Blog
November 9, 2009
While DC dithers, the whole world burns. Looks like the temperature is set to rise dramatically.
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This article has 8 comments:
I have no doubt whatsoever that rising oil prices cause recessions or make them worse, but I think our government has a very limited ability to prevent it from happening again, and are in fact instituting policies which will likely bring about skyrocketing prices again in the near future.
seekingalpha.com/artic...
According to the EIA tonto.eia.doe.gov/dnav... we imported some 12,915,000 barrels of oil per day in 2008, down a little from the peak in 2005 undoubtedly due to the steep price rises we had experienced. But if we were paying $25 per barrel more for the oil than previously that would have added an additional $322,875,000 to the amount of dollars leaving the country every day, or $117,849,375,000 per year. That's sucking money out of the consumers' pockets and sending it to Canada, Venezuala, Saudi Arabia or wherever and it has to have a significant effect.
Although strides are being made in conservation, alternative energy sources etc., I think those are likely to be more than offset by ever rising difficulty and expenses in replacing the oil that is being depleted each year, and by the likely increase in world demand as the citizens of developing nations want to join their wealthier counterparts in enjoying the benefits of fossil fuels.
The real kicker, however, is that our government is in debt up to its eyeballs, is running deficits in the $ trillion + range for the foreseeable future and is monetizing much of that debt. The dollar has devalued some 15% against even other fiat currencies this year and that downward trend is likely to continue for quite some time.
In short, I think the price of oil is going up and there's not a whole lot we can do about it, other than mitigate the rise somewhat in a best case scenario.
Bollocks, at most this was a severe symptom of the underlying problem.
2. There is no doubt that rising oil prices in dollar terms will lead to rising prices for other forms of energy and then food, metals, ores, and timber and hence for almost all essential goods and services in the US. This will clearly depress the Productive Economy and compress the Middle Class further.
The pain on Americans is inflicted by the egregiously bad policies and strategies of the US Regime, not by oil producers and exporters. Oil prices are just another manifestation and quantification of how deranged The Regime, how debased the dollar and how risky the US is now viewed by investors and the rest of the world. Oil is the messenger; the dollar is the message; the US Regime is the source.
The price of oil in dollars is a truth that exposes the lies of WashDc and Wall St and the MSM.
Mr Rubini 'feels' that oil at $100/b will mean a double dip recession. Don't tell me - I know that. Tell OPEC and the governments of their customers to have a long talk about getting and over the near future maintaining an oil price that will make everybody a winner, assuming that it is still possible for a talk of this nature to take place.
> jack
I've been saying that for yrs. 4 of the last 6 recessions were caused by oil. But it doesn't say the half of it.
Not only is the price to buy it high, but we spend $.5T a yr in oil wars, imported oil and Persian Gulf military that we wouldn't have except for oil.
But we could change rather fast if we wanted too but repubs, oil, coal state dems have stopped the change. Here is how we do it and stimulate our economy back to health.
Here is how to do this better for jobs. We can have a stimulus that costs almost nothing to the taxpayer, in fact paid a lot by Iran, Russia, oil dictators!!
How is start up loans for RE companies and energy eff ones. Let most anyone with a good business plan through the SBA get start up loans to build or install homes. small business size windgenerators, solar CSP unit, CHP, small lightweight, aero 3 wheel EV's, etc. Then loans to buy, install, etc these.
Loans for home, building eff upgrades from windows, insulation, etc are next. This would put construction, material workers back to work.
Banks have shown they won't loan so other methods may be needed.
All these can be paid for in energy savings in 5 yrs so no new income costs either. This will create about 3 million jobs directly and probably 6 million indirectly of people supporting them.
Next is a fossil fuel tax to pay their full cost of the direct, indirect subsidies we already pay in our income tax, health care, etc. it's time those who make, benefit from those costs to pay them It should be a $1.50/gal on oil and about double the price of coal.
But you say a tax will kill the economy. Not if it's put in over 2 yrs at 4% each month and loans given to buy more eff cars, etc to cut people's costs and an income tax cut.
Switching trucks, semi's to NG is very cost effective now being under 50% of the cost of diesel/gasoline. This can in 5 yrs cut imported oil needs.
The beauty of this is oil, coal will drop in price making Iran, Russia, oil dictators pay most of the oil tax, coal is only 7% average of your electric bill so it won't go up much.
But new, more eff cars, trucks, EV's, PHEV's and mass transit will create more new jobs too.
The fossil fuel tax revenue, 1/3 would go to a tax cut so those people paying it have the extra money needed if they continue to use the same amount or better, use less and have extra income, the more likely outcome. 1/3 to to help switching to more eff cars, trucks, homes, buildings and 1/3 to balance the budget fossil fuels have been a large part in making.
So this program would have a net increase of about 8-10 million jobs of both direct and supporting those who have the new jobs, solve our imported oil problem, let us leave the Persian gulf between the 2 are about $1T/yr in a few yrs if we don't, stop subsidizing our enemies, oil/coal corporations and balance the budget.. All at little cost to the gov, in fact get rid of our debt on our children and make our country strong again.
Or we will be broke, at war, our enemies strong and we will be weak. To me it's the only real patriotic way to go.
.
I conjecture Lehman went down in September in order to INDUCE an increase in the U.S. dollar relative to the Euro as well as CAN currency and other currencies. Had the Fed and the Bush gov not done so the U.S. economy would have faced MASSIVE shortages of gasoline in the winter of 2008. Don't forget the southeast was hit with gasoline shortages in the fall of 2008. To be honest the March 2009 downturn in the U.S. market caught me off guard ... I'm still playing at the table so to speak but I lost a quarter of my chips ... no big deal. Looking at EIA data tells me the reason the market sold off in March was to get the dollar back up so the U.S. OIL STOCKPILE TANK COULD BE FILLED TO THE RIM which is indeed what occurred according to EIA data in the Feb- Mar 2009 time frame. Now stockpiles are "a little above average" but the U.S. dollar is at the same crummy point as it was in the Fall of 2007 when the market began it's downturn. The way I see it the Obama gov has TWO choices ... they can do nothing about the weak dollar this year and the beginning of next and face the same gasoline shortages in the FALL OF 2010 or they can take down another bank sometime in the next six months ... which will boost the dollar so the OIL STOCKPILE CAN BE FILLED TO THE RIM ONCE AGAIN ON THE CHEAP ... which will delay gasoline prices from getting out of hand for another year. I really don't care what the Obama gov decides to do ... it's too late ... because I see no new "cheap under $15000 dollars" electric cars at the local car dealer ... nor do I see natural gas refueling stations being built ... nor do I see a massive upgrade to the U.S. electric grid to handle the new burden of using electricity for transportation purposes ... I see nothing being done about the energy problem ... but ignoring it ... which is where the word IGNORANT comes from.
What we need to understand, is that to get away from oil, will be a very liberating thing for the US. Innovation will cure our slavery to this awful Dinosaur Goo that is smogging our planet.
Hey, living in China I miss driving around in my car sometimes...but it wouldn't be half bad if it were running on taco grease or hydrogen would it? At least when your stuck in traffic you won't be slowly suffocating yourself with CO2.