Yep, exactly the reaction I expected. As you say, when we get good news oil prices go up, and bad news causes prices to fall. So what does that tell you? It tells me that we are in a vicious cycle where economic growth will be stifled by rising oil prices each and every time those “green shoots” appear. When oil gets too expensive, the growth ends and the economy turns down. It’s called the “Bumpy Plateau” or the “Undulating Plateau”. Google it. And to say that “oil prices are following the economic trends not leading them” is forgetting your history. Remember the summer of '08? Oil spiked to $147 a barrel BEFORE Lehman defaulted, the market crashed, we bailed out the banks, etc… $4 gas was what pushed millions of Americans from living paycheck-to-paycheck into defaulting on their unaffordable mortgages. And cast your mind back to how oil spiked dramatically earlier this year, just as most economists were praising the economic “recovery” and the success of QE2. Of course there wasn’t a real recovery, just another bubble in stocks and commodities, but that oil spike…well that killed the “recovery”, and now we’re seeing the effects. Oil leads, the markets and the world economy follows.
And I didn’t mean to imply that the amount of debt we’re seeing right now isn’t a problem - because it definitely is. What I meant is that if we had an unlimited supply of cheap oil, then the economy could continue to grow exponentially like it has for the past 100 years (with a noticeably increased pace starting in the mid '80s) and that economic growth would be enough to keep up with the debt growth (also exponential). That’s the way it has always worked because oil has always been pretty darn cheap…until now. I’m sure you realize that we don’t have - never had - unlimited supplies of cheap oil. We live on a finite planet. There’s still plenty of oil in the ground, but now we need to go to the bottom of the ocean or the arctic to keep up with demand. So yes, debt is the immediate, noticeable problem…but it’s a lack of oil, and therefore growth, that really
makes it a problem. If we had cheap oil and growth, we wouldn’t even be having this discussion.
Don’t worry too much about the policy stuff either…the problem isn’t really fixable at this point - at least not without a serious reduction in our standard of living - no matter who’s elected next year or which party controls Congress. Read the
Hirsch Report. We’ve passed the point of no return and that will become more and more evident over the coming months and certainly by election time next year.
As I said, let’s all say a prayer for the world.