Comments on: An oil-spike recession

By: Mechie

Mechie — Wed, 04 Mar 2009 02:07:51 +0000

I believe there is something to this argument. Unfortunately, I therefore think the US government is treating symptoms instead of accurately diagnosing the problem. If the economy is truly suffering as a result of the average consumer reducing their spending levels, then its very unlikely that the consumer was somehow knowledgeable of the complex trading instruments, credit swaps, mortgage backed securities in a way that created a mass reduction in spending. No, the easiest answer fits, consumers saw a years long trend in oil prices that was impacting whether they could live or not. When we were flirting with 5$/gallon gasoline I actually heard a woman in line at a grocery store explain to her friend that she’s not sure what she’s going to do if gas keeps going up and that she just wouldn’t be able to drive. It was likely more than just her, but at that level the economy is not sustaining itself but is screeching to a stop.

No, I’m not going to push the ‘Peak Oil’ theory because while in theory I agree, I do not agree with the notion that every uptick in prices is a sign that ‘Peak Oil’ is here. That is simply rubbish. This was/is a market economy driven by a lot more factors than just whether there is oil or whether there isn’t. I think the $150/barrel train’s wheels were greased a bit too well by Bill Clinton in the CFMA of 2000 bill. Peak oil will probably happen or may be slowly happening, but what we had was more of a gold rush as so many huge financials viewed it(investment banks, sovereign wealth funds, universities, hedge funds etc.). Those that speak towards Peak Oil are blindly pointing to the price increase as evidence in and of itself.

The problem is pretty obvious, we just ‘stress-tested’ the economy with $5 gasoline and we failed. Things start shutting down at $150/barrel, those who claim we’ll get to $200 are either financially secure/insulated from whats happening and will wonder why they can’t gas up their car a week after the profit for such a business has dried up once nobody can afford it, or are fully equipped with the means and knowledge of how to drive the market there…

If you want to restore consumer confidence, you need to show that the next time prices go up, it won’t be because of greed. The drop in oil has thrown everybody off track, but the problem still exists. We need enforceable regulation, transparent markets so that we can actually see who has positions in oil so that in case there is manipulation we could do something about it.

By: thenextwavefutures

thenextwavefutures — Sun, 18 Jan 2009 20:14:33 +0000

Well, it’s a spike at the moment! I share your view that increasing volatility is a sign of approaching Peak Oil, and that the upward trend line is going to be upwards – a point of view which even the International Energy Agency has come round to in its most recent report. I’ve also been reading some stuff lately that connects the oil and food price spiral last year to hot speculative money looking for a home outside of the banking sector, which also has a ring of truth about it.

But as I write in my post about longer-term futures (18th January), there’s a wider question about whether the globalising expansion of the last 25 years was a blip or a trend. I think it was a blip; the last long fling of cheap energy, propped up by cheap money.

By: seldon14

seldon14 — Sun, 18 Jan 2009 16:47:39 +0000

I like this theory but the issue for me is the description that it is a ‘spike’. Superficially it is, however, it seems to me at least to be the first pre-tremors of ‘Peak Oil’, i.e. the start of an inevitable and permanent climb in oil prices – with the long-term impact on the world economy. I also agree with your point that the recession is being driven by huge debt, especially in the UK and US where house prices have fueled a false sense of security, supporting increases in debt. The next few months should see the ‘second wave’ of bank problems as these organisations really start to get the measure of their exposure.

Good blog.