Galt's Gulch

Oil Ushers in the Depression

Posted by straightlinelogic 10 years, 1 month ago to Economics
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The future is now. The carnage in the oil sector, where a glut has knocked over a third off its price in less than five months, is not an aberration, but a harbinger—the shape of things to come across sectors and around the world. It kicks off the depression, or more accurately, the resumption of the depression that started in either 2000 or 2007 (let the statisticians quibble about that determination).

This is an excerpt. The full article can be accessed via the link above.
SOURCE URL: http://straightlinelogic.com/2014/12/01/oil-ushers-in-the-depression-by-robert-gore/

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  • Posted by edweaver 10 years, 1 month ago
    This is an angle on the drop of oil prices that I have not considered. This could easily be the start of deflation. I will be paying attention now. Thanks for sharing these thoughts.
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  • Posted by Zenphamy 10 years, 1 month ago
    I see a slightly different picture. One of the crumbling of the debt based economies and monetary systems of the world's nations. Whatever terms we use, whether it's depression, recession, inflation, deflation, crash; I see it as constructive destruction of a system based on a magical Ponzi scheme.
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  • Posted by Robbie53024 10 years, 1 month ago
    This isn't a bridge to a depression.
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    • Posted by edweaver 10 years, 1 month ago
      Explain you position please.
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      • Posted by Robbie53024 10 years, 1 month ago
        One sector, energy, and even that which is only one sliver - oil - that is lower than in others, does not bring a harbinger of depression.
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        • Posted by straightlinelogic 10 years, 1 month ago
          Robbie53024, one could have said the same thing about one sector, housing, in 2007. The problem isn't oil, per se, it's debt. When the world is as leveraged as it is, it takes very little snowball to start the avalanche, even smaller than in 2007. Oil is a heavily leveraged sector (if one considers government pledges of future oil revenues leverage, which I do in my piece) and it may well serve as the snowball this time. Keep in mind that the world is more than 40 percent more leveraged than it was in 2007 ($100 trillion versus $70 trillion). Also, oil is a fairly substantial part of the world economy; it's the only commodity over which nations have recently fought wars.
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          • Posted by Animal 10 years, 1 month ago
            In other words, the housing crisis was caused by government interference in free markets. The oil price drop is caused by the free market at work with less (but not no) government interference.

            Left to itself, markets usually get things right in the end. When government interferes, in the name of "fairness," "social justice" or any other sack-o-crap rationale, things never end well.
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          • Posted by Robbie53024 10 years, 1 month ago
            The housing "crisis" was generated by loans that were given to people incapable of paying them back. The oil issue is being caused by an abundance of oil on the market. Totally different mechanisms. At some point, those providing the oil will decide that current revenue at such a reduced level is less than future revenue at a higher level. Then oil will adjust.

            Reminds me of a conversation that I overheard back in the early '70's. A couple of my scoutmasters were talking at camp. One had the opinion that it was better for us to buy ME oil and keep ours in the ground. That way, when the foreign oil ran out, we'd still have ours to pump out. Seems to be some wisdom there.
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            • Posted by straightlinelogic 10 years, 1 month ago
              I think government interference in oil markets is even more pervasive than it was in the housing market. What is OPEC, and the roster of state-owned oil companies around the world, if not "government interference?" In many cases, they are going to keep producing for a variety of non-economic reasons--jobs, revenues, etc. They may even produce when the marginal revenue is far below the marginal cost, not just the all in cost, so while the market always wins in the long run, that may be a far longer run than most people currently believe.
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              • Posted by Robbie53024 10 years, 1 month ago
                True enough. I just don't see how cheaper energy is going to lead to a depression. Even for those nations that have national oil companies, or quasi-national, revenue lower than costs wouldn't cause a depression independently. Heck, we've been deficit spending for decades and it hasn't caused a depression for us.
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          • Posted by Hiraghm 10 years, 1 month ago
            Last time I knew of nations fighting wars over oil was in WWII when we went for the N African oil fields to starve Rommel's tanks...
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  • Posted by ObjectiveAnalyst 10 years, 1 month ago
    During the Great Depression, deflation was recognized as the worst economic threat by those who still had any economic sense. The experiments of whimsy perpetrated at the hands of FDR and his "brain trust' exacerbated the problem with instability. Capital fled. The gold standard was temporarily abandoned and no one could plan anything. FDR would set the value of gold and the dollar by nothing more sophisticated than how lucky he felt at any given moment.

    I do like cheaper gasoline... the difference between micro and macro. One must not forget to look for the forest. I hope it is not a harbinger, but one must keep history in mind and be prepared just in case..
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