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Lower Oil Prices: Good News Or Bad News?
Submitted by Gail Tverberg via Our Finite World blog,
Oil and other commodity prices have recently been dropping. Is this good news, or bad?
Figure 1. Trend in Commodity Prices since January 2011. Brent spot oil price from EIA; Australian Coal from World Bank Prink Sheet; Food from UN’s FAO.
I would argue that falling commodity prices are bad news. It likely means that the debt bubble which has been holding up the world economy for a very long–since World War II, at least–is failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty.
Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared “peak oil” is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. When prices are set in a world market, the big issue is affordability. Even if food, oil and coal are close to necessities, consumers can’t pay more than they can afford.
A person can tell from Figure 1 that since the first part of 2011, the prices of Brent oil, Australian coal, and food have been trending downward. This drop in prices continues into September. For example, as I write this, Brent oil price is $97.70, while the average price for the latest month shown (August) is $105.27. It is this steeper, recent drop, which many are concerned about.
We are dealing with several confusing issues. Let me try to explain some of them.
Issue #1: Over the short term, commodity prices don’t reflect the cost of extraction; they reflect what buyers can afford.
Oil prices are set on a worldwide basis. The cost of extraction varies around the world. So it is clear that oil prices will not match the cost of extraction, or the cost of extraction plus a reasonable profit, for any particular producer.
If oil prices drop, there is a temptation to believe that this is because the cost of production has dropped. Over a long enough period, a drop in the cost of production might be expected to lead to lower oil prices. But we know that many oil producers are finding current oil prices too low. For example, the Wall Street Journal recently reported, “Royal Dutch Shell CEO: Can’t deny returns are too low. Ben van Beurden prepared to shrink company in order to boost returns, profitability.” I wrote about this issue in my post, Beginning of the End? Oil Companies Cut Back on Spending.
In the short term, low prices are likely to signal that less of the commodity can be sold on the world market. Commodities such as oil and food are very desirable products. Why would less be needed? The issue, unfortunately, is affordability. Affordability depends largely on (1) wages and (2) debt. Wages tend to be fairly stable. The likely culprit, if affordability is leading to lower demand for desirable products like oil and food, is less growth in debt.
Issue #2: Economic growth tends to produce a debt bubble.
Many economists believe that technological innovation is the key to economic growth. In my view, economies need a combination of the following to have economic growth of the type experienced in the last 100 years:1
(Increase in debt) + (cheap-to-extract fossil fuels) + (cheap-to-use non-fossil fuel resources) + (technological innovation)
In such a case, debt keeps increasing as an economy grows. Unfortunately, this economic growth is only temporary, because resources tend to become more expensive to use over time, making the “cheap” resources required for economic growth disappear.
The problem underlying the rising cost of resources (both for fossil fuels and others) is that we tend to use the cheapest-to-extract resources first. Technological innovation continues to occur, but as diminishing returns hit both fossil fuels and other resources, there are larger and larger demands on technology to keep costs in line with what workers can afford. Eventually, the cost of resources (net of technological improvements) rises too much, and economic growth is cut off. By this time, a huge mountain of debt has been built up.
Let me explain further how this happens. Without fossil fuels, the world is pretty much stuck with the goods that can be made with wood, or from other basic resources such as animal skins, cotton, flax, or clay. A small quantity of metal and glass goods can be made, but deforestation quickly becomes a problem if an attempt is made to “scale up” the quantity of goods that require heat in their production.2
Once inexpensive coal became available, its availability opened the door to technological innovation, because it provided heat in quantity that had not been available previously. While ideas such as the steam engine had been around for a long time, the availability of inexpensive coal made the production of metals needed for the steam engine, plus train tracks and railroad cars, available at reasonable cost.
With the ability to make steel and concrete in quantity (both requiring heat) came the ability to make hydroelectric dams and electrical transmission lines, thus enabling electricity for public consumption. Oil, as a liquid fuel, paved the way for widespread use of additional innovations, such as private passenger automobiles, mechanized farm equipment, and airplanes. Between coal and oil, many workers could leave farming and begin jobs in other sectors of the economy.
The transformation that took place was huge: from wooden tools and human or animal labor to a modern industrial society. How could such a big change take place? Before the change, the ability to generate a profit that might be used for future capital investment was very limited. Also, the would-be purchasers of products made in an industrial economy were very poor. I would argue that the only way of bridging this gap was debt. See my earlier posts, Why Malthus Got His Forecast Wrong and The United States’ 65-Year Debt Bubble.
The use of debt has several advantages:
- It allows the consumer to buy the end product made with the new resources, assuming the end product isn’t too expensive relative to the consumer’s earnings.
- It gives resource-extracting businesses the money they need to buy equipment and to hire workers, prior to the time they have earned profits from resource extraction.
- It gives the companies the ability to build factories, before they have accumulated profits to pay for the factories.
- It allows governments to fund needed infrastructure, such as roads and bridges, before having the tax revenue available to pay for such infrastructure.
- Most importantly, the “demand” generated by (1), (2), (3) and (4) raises the price of resources sufficiently that it makes it profitable for companies in the business to extract those resources.
Because of these issues, debt and cheap fossil fuels have a symbiotic relationship.
(1) The combination of debt, inexpensive fossil fuels, and inexpensive resources of other kinds allows the production of affordable goods that raise the standard of living of those using them. The result is what we think of as “economic growth.”
(2) The economic growth provides the additional income needed to pay back the debt with interest. The way this happens is indirectly, through what is sometimes described as “greater productivity of workers.” This greater productivity is really human productivity enhanced with devices made possible by fossil fuels, such as sewing machines, electric milking machines, and computers that allow workers to become more productive. Indirectly, the higher productivity of workers benefits both businesses and governments, through higher sales of goods to consumers and through higher taxes. In this way, businesses and governments can also repay debt with interest.
Higher-priced resources are a problem. Higher-priced resources of any kind tend to “gum up the works” of this payback cycle. Higher-priced oil in particular is a problem. In the United States, when oil prices rise above about $40 or $50 barrel, growth in wages stops.
Figure 2. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.
With higher oil prices, the rise in the standard of living stops for most workers, and good-paying jobs become difficult to find. There are a couple of reasons we would expect wages to stagnate with higher oil prices:
(1) Competition with cheaper energy sources. When oil prices rose, countries using a very high percentage of oil in their energy mix (such as the PIIGS in Europe, Japan, and United States) became less competitive in the world economy. They tended to fall behind China and India, countries that use much more coal (which is cheaper) in their energy mix.
Figure 3. Average percent growth in real GDP between 2005 and 2011, based on USDA GDP data in 2005 US$.
(2) Need to keep the price of goods flat. Businesses need to keep the total price of their products close to “flat” despite rising oil prices, if they are to continue to sell as much of their product after the oil price increase as previously. Oil is one major cost of production; wages are another. An obvious way to offset rising oil prices is to reduce wages. This can be done in several ways: outsourcing work to a lower cost country, greater automation, or caps on wages. Any of these approaches will tend to produce the flattening in wages observed in Figure 2.
Based on Figure 2, an oil price above $40 or $50 per barrel seems to put a cap on wages, and indirectly leads to much less economic growth. Even if we didn’t hit this oil price limit–for example, if we had discovered a liquid fuel that could be produced in quantity for less than $40 barrel–we would eventually hit some kind of growth limit. For example, the limit might be climate change or too much population for food production capability. Even too much debt can be a limit, if citizens’ incomes don’t rise in a corresponding manner. At some point, it becomes impossible even to make interest payments if the debt level is too high. Indirectly, citizens wages even support business and government debt, because business revenues and tax revenues depend indirectly on wages.
Issue #3: Repaying debt is very difficult in a flat or declining economy.
Once growth stops (or slows down too much), the debt bubble tends to crash, because it is much more difficult to repay debt with interest in a shrinking economy than in a growing one.
Figure 4. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.
The government can hide this issue for a very long time by rolling over old debt with new debt and by reducing interest rates to practically zero. At some point, however, the system seems certain to fail.
Not all debt is equivalent. Debt that simply blows bubbles in stock market prices has little impact on commodity prices. In order to keep commodity prices high enough for producers to want to continue to produce them, the debt really has to get back into the hands of the potential buyers of the commodities.
Also, any changes that tend to reduce world trade push the world economy toward contraction, and make it harder to repay debt with interest. Thus, sanctions against Russia, and Russia’s sanctions against the US and Europe, tend to push the world toward debt collapse more quickly.
Issue #4: Rising oil and other commodity prices are a problem, especially for countries that are importers of those commodities.
Most of us are already aware of this issue. If oil prices rise, or if food prices rise, our salaries do not rise by a corresponding amount. We end up cutting back on discretionary purchases. This cutback in discretionary purchases leads to layoffs in these sectors. We end up with the scenario we had in the 2007-2009 recession: falling home prices (since higher-priced homes are discretionary purchases), failing banks, and many without jobs. See my article Oil Supply Limits and the Continuing Financial Crisis.
The reason that low oil and other commodity prices are welcomed by many people now is because the opposite–high oil and other commodity prices–are so terrible.
Issue #5: Falling oil and other commodity prices are a problem, if the cost of production is not dropping correspondingly.
If commodity prices drop for any reason–even if it is because a debt bubble is popping–it is going to affect how much companies are willing to produce. There is going to be a tendency to cut back in new production. If prices drop too far, it is even possible that some companies will leave the market altogether.
Even if it doesn’t look like a country “needs” the current high oil price, there may still be a problem. Oil exporters depend on the high taxes that they are able to obtain when oil prices are high. If they cannot collect these taxes, they may need to cut back on programs such as food subsidies and new desalination plants. Without these programs, civil disorder may lead to cutbacks in oil production.
Issue #6: The growth in oil sales to China and to other emerging markets has been fueled by debt growth. This debt growth now seems to be stalling.
Growth in oil consumption has mostly been outside of the United States, the European Union, and Japan, in the recent past. China and other emerging market countries kept demand for oil high.
Figure 5. Oil consumption by part of the world updated through 2013, based on BP Statistical Review of World Energy 2014 data.
Ambrose Evans-Pritchard reports, China’s terrifying debt ratios poised to breeze past US levels. He shows the following chart of China’s growth in debt from all sources, including shadow banking:
Figure 6. China’s total debt, based on chart displayed in Ambrose Evans-Pritchard article.
This rise in debt now seems to be slowing, based on a Wall Street Journal report. A person wonders whether this stalling debt growth is affecting world oil and other commodity prices.
Other emerging markets also seem to be experiencing cutbacks. Since 2008, the United States, Europe, and Japan have had very easy money policies. Some of the money available at low interest rates was invested in emerging markets. Now the WSJ reports, Fed Dims Emerging Markets’ Allure. According to the article investors, investors are taking a more cautious stance on new investment because of fear of rising US interest rates.
Of course, other issues affect debt and world commodity demand as well. If interest rates rise, they many have a tendency to shrink new lending, in general, because loans become less affordable. Sanctions of one country against another, such as the US against Russia, and vice versa, also tend to reduce demand.
Issue #7: Debt bubbles have been a problem in past collapses.
According to Jesse Colombo, the Depression was to a significant result the result of debt bubbles that built up during the roaring twenties. Another, longer-term cause would seem to be the loss of farm jobs that occurred when coal allowed tasks that were previously done by farm workers to be done by either electricity or by horses pulling metal plows. The combination of a debt bubble and loss of jobs seems to have parallels to our current situation.
Many believe the subprime housing bubble crash contributed to the Great Recession. The oil price spike of 2007 and 2008 played a major role as well.
Issue #8: If we are facing the collapse of a debt bubble, it is quite possible that prices of many commodities will fall. This could possibly lead to a collapse in the supply of many types of energy products, more or less simultaneously.
Figure 8, shown below, is a very rough estimate of the kind of decline in energy use we could be facing if a debt collapse leads to very low prices of many types of fuels simultaneously. Prices of many commodities crashed in 2008, and it was only with massive intervention that prices were propped up to 2011 levels. After the beginning of 2011, prices began sinking again, as shown in Figure 1.
Figure 8. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.
Clearly governments will try to prevent another sharp crash in commodity prices. The question is whether they will be successful in propping up commodity prices, and for how long they will be successful. In a finite world, fossil fuel energy production eventually must decline, but we don’t know over precisely what timeframe.
Issue #9: My steep decline contrasts with the “best case” forecast of future oil consumption given by M. King Hubbert.
M. King Hubbert wrote about a scenario where another type of fuel completely takes over, before oil and other fossil fuels are phased out. He even discusses the possibility of making liquid fuels using very cheap nuclear energy. The way he represents the situation is the following:
In such a scenario, it is possible that oil supply will begin to decline when approximately 50% of resources are exhausted, and the down slope of the curve will follow a symmetric “Hubbert curve.” This situation seems to represent a best possible case; it doesn’t seem to represent the case we are facing today. If a debt collapse occurs, much of the remaining fuel is likely to stay in the ground.
Issue #10: Our economy is a networked system. Increasing debt is what keeps the economy inflated. If wages fail to keep pace with debt growth, the system seems likely to eventually crash.
In previous posts, I have represented the economy as a self-organized networked system, consisting of businesses, consumers, governments (with laws, regulations, and taxes), financial system, and international trade.
One reason the economy is represented as hollow is because the economy loses its capability to make goods that are no longer needed–such as buggy whips and rotary dial phones. Another reason why it might be represented as hollow is because debt is used to “puff it up” to its current size. Once the amount of debt starts shrinking, it makes it very difficult for the economy to maintain its stability.
Many “peak oilers” believe that if we have a problem with the financial system, all we have to do is start over with a new one–perhaps without debt. Everything I can see says that debt is an essential part of the current system. We could not extract fossil fuels in any significant quantity, without an ever-rising quantity of debt. The problem we are encountering now is that once resource costs get too high, the debt-based system no longer works. A new debt-based financial system likely won’t work any better than the old one.
If we try to build a new system without fossil fuels, we will be really starting over, because even today’s “renewables” are part of the fossil fuel system. We will have to go back to things that can be made directly from wood and other natural products without large amounts of heat, to have truly renewable resources.
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What's happening in Syria?
US airstrikes and cruise missles. supposedly including airstrikes from "Arab" nations as well. are the targets ISIS or Assad?
First: Not ISIS but ISIL
Second: Not US but Europe needs that gas
Third: That gas need to be financed in dollar to generate revenues for US to finance its debt
Deflation! Oh the horror!
The debt bubble can only end with hyperinflation or deflation. Hyperinflation would hurt a lot of people. Deflation would hurt a lot of (different) people.
If oil drops to the current BTU equivalent price of nat gas its going to be very ugly for a lot of oil companies.
oil at $90 a barrel and now come the non stop articles about how it should be selling at $200 a barrel. $150? $126.26 a barrel and on and on and on. watch how each article has a different take on why oil needs to be higher....must be higher....must be higher. just the start.
Oil Prices coming down? Bring this mutherfucker down & shut the power grid cause finally we can stop this whole rigged funny farm from continuing! 99% of the people have nothing to lose. It's the 1% that are going to cry cause all their investments will vaporize.
Lower oil prices point to deflation. The Bilderbergers hate deflation. But no mattter how much money they print, the economy has a mind of its own. Inflation can't be created because of the debt. Money is disappearing every day.
What we have here is alot of assumptions, and one conclusion.
negative rates;
What we have here is alot of assumptions, and one conclusion:
If you have NOT much to add, save your lemon opinion to yourself.
Hope I finished your sentence correctly, negative rates!
Every inflation has ended with deflation, that's an historical fact repeated since the dawn of civilization. Economically, every debt is repaid, either by the borrower or the creditor who issued a defaulted loan. The books balance because they are designed to balance. A classic release from debt was the jubilee, once every seven years, all debts were forgiven. I guess there were no long term loans in those days....
Our society reminds me of an aborigonal community I visited in the deep North where no roads go and the only thing that comes in is free food, housing, and everything else by plane, and the people are a miserable, defeated, unhappy lot, sitting in their homes watching TV. The best thing that could happen to them would be to return to their previous way of life, which meant extreme hardship, constant work, moving all the time, insanely thick continuous clouds of bugs in summer and punishing cold in the winter, but the people were happy, proud and managed fine.
Dropping prices and less useless shit made by energy slaves on the other side of the world? Yes please. I know it will hurt and I will complain, but we won't be depressed, stoned and sitting around doing nothing like over half the population (well, OK, I am a prepper, can you tell?).
Agree that deforestation is a problem in that model. It was getting people in the 1700s worried before coal came along.
I'm with you on the simple life bit, but I do like antibiotics. When they work. (A lot of the blame for antibiotics not working can be placed on the ag industry.) I also like automobiles. They're convenient. And the internet.
But I'd eat moldy bread, use horses and go back to the library if I had to.
Now, if we can just remember how to make primitive printing presses.
You can't de-invent technology. It's just that most of it either gives us more idle time or gives us mind numbing distraction during that idle time. No techno-rewind would be fun, and there can be no denying that the conditions of life in previous centuries was very hard. I'm not talking about pastoral skipping and jumping in the meadows here.
So yeah, antibiotics, cars, you name it, all take away physical burden. We are at a loss to replace that with anything, so media give us superficial horseshit to think about.
Nothing to lose but their lives.
Shut down the power grid and the majority of people won't have access to clean water.
A lot of frozen and refrigerated food would rot. Large scale food processing and transport would end. Millions would starve.
And if you are prepared enough to have a well with a hand pump, a good supply of shelf stable food, a big garden, some chickens, the ability to trap, wood based heating, and a gun and the disposition to use it...well hope you don't need any kind of medication on a regular basis. Because could be that when you run out there will be no more. Hope no one you love is an insulin dependent diabetic.
I don't know why you guys bother with all this conjecture. You could HALVE the power output of the country by simply eliminating frivolous bullshit (including 85% of "business travel") and still provide a modern standard of living. Of course there would be massive bankruptcies along the way and lots of industries (like healthcare) getting turned on their head.
Point is -- a lot of stuff can go wrong before we get to the level of anxiously watching the chicken in its nest to see if we get breakfast today.
By all means though, prep on. Like a couple cords of wood in the back yard, knowing your own little life raft is there is a nice feeling.
This is something that can be measured. It has been measured.
http://d1w116sruyx1mf.cloudfront.net/ee-assets/channels/article_default/...
The real and intended target/victim of lower oil prices is Russia, and its Budget/Cashflow.
I hope that the price of oil drops to the point where every well in the Baaken is unprofitable.
The land is being polluted and the depletion rate is so high that the people of North Dakota won't know they've been raped for a few more years.
http://srsroccoreport.com/the-coming-bust-of-the-great-bakken-oil-field/...
Fat chance. Neptune is in Pisces and will be until 2026; meaning: oil gets found everywhere.
Funny.. I thought it was in Uranus.
If you are debt free, deflation is not a problem.
So who's askin'? ... Don' make me call Knuckles!
By the time i got to the end of the post, i just didn't give a shit anymore.
"If the debt bubble collapses, we will be in huge difficulty."
Any idea of what the hell we're in now?? Small difficulty??? WTF?
Oil's going down because everbody's broke...
That's it, we all just broke and got no jobs.
Generally, when that happens, oil tends to go down.
IT"S TOO GODDAMNED BAD GAS DOESN"T GO DOWN WITH IT...................
My question was what the hell does coal have to do with horse drawn machines.
Neither: Putin is the target.
USA wanting oil, Qatar wanting gas pipeline
US trying to attack the Russian economy by crushing oil prices.
This explanation is the right one and it makes the entire article irrelevant.
Premptive bombing by the Peace President. apparently the Nobel Peace Prize was ironic, who knew the Swedes had such immense subtle wit?
Why do you have this "Global Warmer" here on ZeroHedge?
You of all on the planet should know globull warming is a complete and total political scam. I automatically stop reading / listening to anyone that believes in it as I consider either their morals or scientific acumen to be impaired at a minimum.
She won't get predictions of the future correct if she can't even get assessments of the present even close to reality.
USA is a net importer of oil, therefore oil price going down is good. Sucks for Canadians though.
Fourth: Shale is not oil but Condensate liquid
Fuck Harper. The douchebag has us in Iraq now.
Harper? Is that douche still in Ottawa?
Who is Harper?
Mary tyler Moore's next door neighbor. aka Rhoda, a swingin 70's chick with a hearty laugh. Likes to borrow a cup of blow and some condoms from Mar every now and then.
You know her as Valerie..
You probably have the kids stumped on this one.
I believe you have to be a certain vintage to even reference your comment, let alone remember the show.
Mary tyler Moore?
Who's she?
"If the debt bubble collapses, we will be in huge difficulty."
Collapsing the debt bubble is a step towards restoring price discovery mechanisms.
Collapsing the debt bubble collapses the US and the global reserve currency.
We will see civil war in the US.
So what's the problem?
Hey Escrava.
If you look around the whole world is slipping into a state of civil unrest. That's generally what happens when empires (economic, military, or territorial) collapse.
The fringes of the empire (the border lands) start to go down first, and then it spreads inward to the core.
PS: good thing Berkshire Hathaway has bought some major railroads, I guess Buffett is super bullish on the average American's ability to afford oil and gas for their cars in future, right? (/sarc). When you no longer can afford to travel by road, rail is pretty much the only option left for your average joe. That goes double for wholesale deliveries.
Uncle Warren once again has your average family and business by the nuts.
Back to the future...rail, rivers and oceans. Someone needs to get on making ocean freighters with sails and solar collectors for backup power while the resources are still available.
BrosephStiglitz,
What we will be facing is much bigger than an Empire collapse, I am afraid.
We will go into more details in some other opportunity.
A return to homesteading based on permaculture principles is a vote for a sustainable future. Getting started now, so learning curve can be sipported by fiat, cheap (ish) fuel, and day jobs is the critical success factor for the transition.
Good, but forget cheapish fuel. LENR (formerly know as cold fusion) is the right path. Oil interests will look for a way to circumvent it's realization, just as much as DeBeers has pursued an end-run around new technologies that produce synthetic diamonds.
Dense plasma focus fusion appears to be a real possibility to replace fossil fuel electricity generation in the next decade or so.
Good to see someone on ZH paying attn to such things! But, in terms of scale, I wouldn't want one in my basement ...one for the town I live in might be nice. For my basement, I'd prefer a LENR device dumping waste heat into a Stirling generator for backup electric power.
Also, I was very happy so see support for Lerner's DPF approach coming from peer-reviewed magazines Science and Nature.
Love to, but land within reasonable distance of job centers is outrageously expensive. Around $100K an acre here, and that is unimproved.
does anyone know if CIO still frequents ZH or has he left?
CIO was kidnapped by Million_dollar_bonus who took him to the swiss alps for some fight club. last seen at Zurich aiporrt buying chocolate bars and mini liquor bottles.
Snuggle-The_clown was their chauffer according to police reports released by hackers from the zurich anarchist bankers movement.
Masters of the Universe Unite!
I mean seriously....oil is a "global commodity"?
Sure...if we're talking the 70's. But there is so much energy product right now it's really hard not to call energy a purely localized phenomenon now.
Without "fat pig Government" (to be blunt) prices would have collapsed long ago/again.
The reason why the price of the goo is getting choked to death is because the Federal Government bankrupted itself in 2008. "Now they're just a funding scheme for Wall Street Banks" having launched trillion dollar deficits combined with opening the taxpayer "balance sheet" to be monetized.
Ironclad rules of supply and demand are now in charge...namely "the Government has no way to pay for the oil."
Wall Street...not being totally stupid...has moonshot Tesla and "free energy" in the form of a simple battery "and trillions poured into the nuclear power industry" which makes the war effort look like...well, not much of anything really.
"Here's your Army of One Mr President. Don't worry...the media has your back."
This like a Pigs in Space episode from the Muppet Show. "That battery combined with trillions in debt means all energy trading is drying up."
The only game in town is NASA.
And the VA.
We do still have a Navy and Admiralty as well.
We appear to have a very stout Air Force as well...but the Admiralty will defy all orders to stand down. "They dumped OBL's body in the Ocean." They certainly knew what they were doing when they denied the entire City of New York their justice. Apparently no one else gave much thought to this. Certainly didn't hear any complaints about it.
Now with commodity prices being utterly annihilated maybe it's time to lay keel on a new Ticonderoga Class Missile Cruiser. "Something huge" preferably.
All we have is a MIC to secure someones beliefs, right or wrong. But the outcome is always the same.
That was actually a damned good article. Too fucking long, I don't need to be spoon-fed like some stupid kid, but still a worthy effort to explain basically "everything that matters".
EKM's going to be pissed they didn't mention the role of military power in there, though.
A good article to pass along to any who can read and are not fully aware of what is just around the bend. Luckily, I have some family that will read and think - I know, though, not the usual case.
NoDebt EKM's going to be pissed they didn't mention the role of military power in there, though.
---
Emk is like most losers. He disappears when an article doesn't support his agenda. When he does appear, he spouts rudimentary accounting basics like we are all morons, which we aren't.
Profit = Sales minus Cost (like no shit)
EKM fails to recognize history and various monetary and fiscal environments.
Good news for poor people (however temporarily), bad news for rich people (who aren't "short" - though most are ugly) and the usual bullshit for all other living things.
bad for Putin. hmmm
Says who?
Says me
The mind fuckers in the west do better with cheaper oil while squeezing Russian profits.
The Blank Stare,
You let your madness blinds you. Try looking on the facts for what it is.
Russia and American elites are manifestations of the same thing.
Russians and Americans are pretty racist.
Both elites understand that “Free-Market”, “Capitalism”, and “Democracy” are meaningless slogans, but indoctrination to the mass population.
Both nations don’t believe in religions. Russia, by removing religion to construct an ideal Communism; and America by separation of church and state.
Your lack of awareness, and Russia propaganda, it’s disturbing…. But not surprising; at least, to me.
Where do you get your facts? From Uranus? OK Bad joke.
You're very good at the label thing. I'm talking potatoes and you're talking global conspiracy. I have no problem with that. Next time you want to talk global conspiracy give me a heads up. OK?
PS
No need for the degrading remarks, unless it just comes natural for you because of some SMALL problem.
Reading it back, I didn't do a good job with that post. My mind was in the geopolitical aspect.
Anyway, we can go into the geopolitical, and oil, in some other post.
Good news for poor peaple. Bad news for rich people. Let's see who wins this one. Your move Yellen.
Thanks Gail.
The best thing Prof Goose ever did was to get you on TOD.
Is there any way of knowing how much of QE was diverted to Oil and Gas exploration?
how much qe was diverted from bankers to oil & gas exploration, ummmm zero?
Have you ever seen a banker give money back to someone without charging them for the honor?
Banks rapr people, thats what they do.
bankers who give away money aren't bankers, they are govenment employees see Hank Paulson, et al.
I fail to see any division between the banks and govt.
I really, really tried to read the whole article but he kept saying food costs had decreased so I know he's on a different planet. My food does not cost less. Did he actually mean agricultural commodities and not human food? Is english a second language for this author? Oh well, I give up.
He is using data from the UN's Food and Agriculture Org. Imagine what a clusterstook that is!
He is a she, your reading comprehension skills could use a bit of work.
I wonder if Gail looks good in Go-Go Boots like Valerie Harper does.
Food is in fact dirt cheap in the US. Anyone can with minimal effort meet their nutritional needs on less than five bucks a day. Anyone. That is a fact.
Need proof. Look around. What do you see. You see grossly overfed people, everywhere.
Followed a link on Drudge. Took me to an article by the UK Independant on, get this, The Taste of Human Flesh.
And so it begins.
Here is one quote, " a man's breast is the sweetest meat I've ever tasted"
WTF. At least process it into Soylent Green so the herd doesn't know.
That, to me, signals the beginning of the end.
Along with the whack job chick who had a third breast installed.
Certain foods have gone up especially dairy & meat, but you're right.Food is basically cheap. I just made home made spaghetti sauce with tomatoes from our garden. It costs more (not counting all my work) than a jar on sale at the grocery store for a buck.
Mack daddy vs bagdaddy
...vs oh, yeah....... The Cat Daddy
https://www.youtube.com/watch?v=HAsaY449PQc
Democrat in White House, price of oil irrelevant.
Its bad news for the naked puts I have sold in /CLX4
naked puts? Oh, I thought you said naked Putin. Never mind.
The cost of a commodity can not outstrip the ability of the population to consume it.
Since the great financialization post 1999 the price of commodities no longer connected to consumption, only the profit generated from churning contracts. This lead to a massive imbalance that tried to correct itself in 2008, but was not allowed to complete because of the massive leveraged bets on the continued contract trade. Not to mention the fees the large brokerages ran up.
Without the massive contract trade the profits disappear. A drop in end consumption demand doesn't explain the sharp drop in the traded price of commodities in 2008. Real consumption patterns do not change within a single quarter. The only thing that changes that rapidly is demand for paper that can be traded quickly for a short term gain. If you can get people to chase each other in a dash for easy profit, prices will skyrocket regardless of true end consumption. It is not the commodity cosumed that matters, but the idea that it can be consumed and therefore valuable that matters.
This simple idea has led to some of the greatest scams in history. Hopefully the paper trade will come to an end and allow pire price discovery. Only after that can the global economy truly move to the right path.
So Ma is only a " billionaire" on paper?
s/
Ma can kiss ma ass Jack...
Strictly speaking, oil or any other commodity going up or down is neutral. It is not good or bad. It is just change and adaptation. Every trade has two sides and prices when not rigged by governments or cartels give clues as to what should happen next, e.g., more oil exploration or less.
Having said that there is still a legitimate debate as to what oil prices up or down MEAn in an economy. They could tell you that the economy is stalling. They could also just tell you that the suppy of oil is rising or demand falling as other energy sources become preferential.
They all can predict as a subset of meaning. If you believe oil prices dropping means the economy is dropping then you can beat the market and sell your stocks.
The best analogy to an infinitely complex but finely tuned economy is the rain forest. If a tree falls down it is neither good or bad. It is good for some and bad for others but everything adapts.
Oil has been overpriced for 3 years. Supply and demand dictates a lower price, long overdue. Which will help us get out of this stagnation. Even if the lower price only lasts a few years, that is still a big help. If some bet on ever rising oil prices and now are facing a squeeze, so be it.
lower price will result in lower supply as it becomes too expensive to extract. lower supply leads to higher price and increased production until the price is too high that it again reduces demand. rinse and repeat...
Forget about oil, technicals indicate gold is currently in a 'once in a decade buying opportunity' - video here:- 'Gold's Once In A Decade Buying Opporunity Happening Now!'
Another Elliott Wave idiot!!!
Who is this dipshit? Consumer debt used simply for consumption is a primary contributor to the problem the globe is facing. Likewise for government debt used for non productive expenditures.
What is this problem the globe is facing? Isn't the globe merely a geometric model of the earth?
Oil prices have no correlation to the stock markets
http://www.globaldeflationnews.com/dont-get-ruined-by-these-10-popular-i...
Paper gold paper silver paper oil
choose your manipulated commodity wisely
Do the laws of supply and demand hold up with this much monetary manipulation?
All that printed money can easily be used to play the long side and the short side against each other til infinity or crash.
I, for one. welcome $1.oo gal 89 octane fuel. Watch this economy go on a tear! High oil prices are a brake on economies.
There is no functional economy, we've been in a depression since september 2008.
The government has been propping up the stock market and loaning money to foriegn banks under the guise of Tarp and qe etc for nearly 5 years - during our "on going recovery" propaganda, aka jobless recovery, aka recoveryless recovery.
Deflationary Depression of massive proportions just around the corner with soaring unemployment is my opinion.
There is a lot of people been eating that "sandwich" since 2008, so what else is new???
More pie??? Shure, pile it on. We are conditioned to it, and we will eat it till we stop. And don't think for a moment that it won't stop at some point in time. When that sandwich is put down, you better be long food, water, bullets and the implements to shoot them with.
Ah the reset, unicorns and mult-flavored skittles. I can't wait..... NOT.
Not good enuff.
Define: 'Around the corner' using a clock, calendar or ouija board.
The author's viewpoint seems to believe that the 'debt bubble' is a GOOD thing and that lower gas prices may signal if is ending. If cheap gas means the bubble is popped - then THAT would be a good thing.
The author is merely recognizing the reality that our industrial expansion and urban build-out has been financed with debt. When the debt can no longer be rolled over, the economy as we know it will seize. This fact is independent of moral qualifyers like 'good' and 'bad' -- it is simply the way it is.
Whether you view the collapse of the present order of society as a good thing or a bad thing is largely a matter of time frame. It will be horribly bad in the short run, but perhaps better for future generations.
Not good enuff.
Define: 1) Short run
2) Long run
Specifically, using a calendar. a gregorian calendar -------notwithstanding the First Council of Nicea of the Pope------ or a a Mayan one.
Ahhh oil prices droping, thats good for us, but not so goos for Führer Putin :)
Dropping Oil Prices Threaten Moscow’s Budgethttp://oilprice.com/Energy/Oil-Prices/Dropping-Oil-Prices-Threaten-Mosco...
$60 oil will finish Russia's Putin regime, says Hermitage's Browderhttp://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100026424/60...
$60 oil will also finish off our oil companies or some US state governments.
Oil is the moving force of the entire economy and the most valuable commodity.It is a necessity and thats why we can think every asset class price not in dollar terms but in barrel terms.We have recently discussed this issue and what this kind of price representation could reveal about future
http://goldenopportunitytrading.blogspot.co.uk/2014/09/i-have-found-oil-...
What's not being said.......
The " work" that is done by a barrel of oil, if calculated in human terms and priced by a human prevailing wage is....$500,000.00!
Put a $4.00 gallon of gas in the Ford, drive it until it stops, and push that motherfucker back to the starting point. And then argue $4.00 is expensive.
I'm not arguing it's too cheap or too expensive. I'm just pointing out how absolutely useful it is to our modern way of life, at any price.
And there is NO alternative! NONE!
Let's celebrate the lower oil prices by going on a road trip.
None of this analysis is useful until the concept of debt gets defined a lot better.
Originally, debt was created by someone borrowing another person's savings.
Now, of course, debt arises by promising future earnings. Not the same thing, not by a long shot.
As trade took off during the Renaissance, it was financed by the first kind of debt. In fact, the Great Leap Forward from 1400-1900 was financed by borrowing gold and silver from Jewish moneylenders. For the most part, the loans were backed by real-world collateral.
But when the world shifted to fiat currencies, governments began to borrow (usually for purposes of war) based on their ability to tax the future earnings of their subjects.
Even the average man could play the game -- borrowing based on his credit score, and not on collateral he possessed of equal value.
The first kind of debt is fine, the second kind is a travesty that will only end one way -- in bankruptcy of both the borrower and the lender.
Which is where we're at right now. And no, it won't end well. But I can promise you that after this ends, no one will be borrowing money for a long, long time unless they have equivalent collateral.
And when they do, they'll be borrowing someone's savings, not pieces of paper meant to represent future earnings.
The first kind of debt is fine if it is tied to future productivity with risk tallied in. The interest can never be so great that it cannot be trumped by a slight increase in money velocity on top of that.
Step back and think about how this would work in a world where there was a fixed amount of money/currency and a stable population. (We don't want to introduce too many variables just yet.) If you're lending somebody your savings, you want a return. If you want that to happen when the population is stable and the money supply is stable, that means that prices either need to go down, or the money velocity needs to pick up, or both. That means that either efficiency needs to go up, productivity needs to go up enough to kick the money velocity up so that you can re-earn the interest you're paying, or some combination of both. Throw in population changes and money supply changes and it can get very complex.
Let's review the situation.
Either supplies of all commodities are multiplying or the depression in the lower middle class and down has dampened demand.
I wonder which it is?
"Eenie, Meenie, Miney, Mo
Catch Obama by the toe.
The oil price drop is temporary while we wage war against Russia and impose higher carbion taxes on Americans to fund criminal invasion, then all bets are off.
Yet another Ehrlichian strikes again. You could turn some of those graphs upside down and they'd make a good global warming hockey stick.
Temporary news. Wait until the eleciton is over. Those prices will be on th rise, once again. Obamacare must be paid for!
Debt was never a "necessary" part of the equation, but growing the available money supply (necessary for economic growth) through debt would have been the most stable way of doing it. Any other way of increasing the money supply would have been unstable because the one holding the power would have had no practical limits to the exercise of that power and would have created hyperinflation in short order.
Since the future doesn't hold the prospect of significant growth, a slow growing supply like Bitcoin if the technology infrrastructure remains in place or precious metals if the technology infrastructure fails can serve as money.
The use of debt has several advantages:
6) Allowing a few dozen central bankers to enslave all of humanity.
U don't really unnerstand, along with several dozen of the other badly misinformed bloggers here, and elsewhere, debt.
Donald Trump is the most recent Great Understander of debt.
It's simple really:
If you can get----as Donald Trump has-----several entities to lend money to you, then what you do is you borrow hunnerts of thousands, millions, billions, trillions of Euros, Scheckels, FRNs, Digitally created 1's and zeros, lotsa zeros, as they have to the Donald, and then you go bankrupt.
If youve done this correctly you will be richer than Soros, and as free as it is ever possible to be in this world.
I have two friends who declared bankruptcy after getting financial institutions-----AND the IRS if you can believe it in paying back fraudulently withheld and non-submitted payroll taxes, income taxes, and no jail time or criminal record----- to lend them millions, and are now retired living in Dallas and Florida, two homes, apiece, both with hairpieces----what is it with these bad hair guys that get away with this shit???
So do not decry debt in the hunnerts or thousands. Get someone to lend you at least 5-10 zeros with any other digit first, and retire.
Debt is a Top of the line Swiss Army Knife, and as in any tool, in the right hands you can build an Armada, a Skyscraper, a lifelike inflatable working model of Sofia Vergara with it.
Your problem and that of your confreres, amigos, and good buds here, is that you gotta think bigger, much much bigger.
WADR
Another Boating accident:
http://globalflare.com/30000-pounds-of-gold-discovered-off-the-coast-of-...
Well I day trade and low oil prices are hurting energy producers that use oil.
Jack the price up please and and free my interests.
You can take the chains off gold while your at it.
The rising wages chart does not reflect median inceme of the majorty which has been falling. At leas, lower prices would benefit this majority, and allow for a cleansing of debt that would not be able to be repaid anyways; both will be necessary for survival during thet reset- lower proces and debt destruction.
Deflation before they QE forever, and then massive inflation.
This bears repeating but I'll forget it.
Cocoa, my Hershey's almond chocolate bars, and Kisses, and Kit-Kats are going to skyrocket as Cocoa is reaching all time highs.
Let's add cocoa to the commodities prices and you will see that this is an f'in crime.
Someone or group is cornering the Cocoa market, and my bet is on that what's his face, Soros!
A lot of cocoa comes from places that are having a little problem with Ebola.
Long Hershey Bars and Caterpillar.
Lower oil and other dollar denominated commodity costs tend to strengthen the (out of thin air) dollar in the short term.
In the context of a paradigm shift away from the past 150 years of growing commodities production there likely will come a time where the above statement will no longer be...
Yes.
imo no matter what oil prices do xle will suck as bad as the miners. higher overhead + lower production = ground down to dust over time.
There are other types of economies other than financialized fiat debt economies which do not require inflation and fiat debt payment to exist ... only labor. Labor adds value to the economy which creates growth. But that would be giving all power to labor and not the creators of the fiat lie.
For some reason is seems wrong that all power created from debt or energy should go to the first or the most fraudulent or the most sociopathic.
Just before the crash in '08 oil spiked to @ $140 bbl and gas went to @ $3.75-4.00 a gallon.
Oil is now @ $90 a bbl, but gas is still @ $3.75-4.00.
WTF?
I am finally at the point where the price of gas does not mean anything to me anymore. I have cut my driving to the bone and I don't feel like I am missing anything. If it went to a dollar a gallon I might take a tour of the country but I have already seen it in my younger days and might just want to remember it the way it was.
I can't wait for food prices to go down now that the cost of transport is cheaper...yeah