Oil and energy costs are 2nd only to housing bubbles in recession creators. The current energy environment is no different. Oil prices at this level can not be sustained... not now, not ever... It doesn't matter what Cramer tells you about the never ending oil boom.
Prices at our current level will cripple the world economy.
It is only a matter of time... It is NOT different this time.
We have NEVER been in an energy environment like the current one. In addition to the commodity boom, commodity rich countries are seeing a wealth effect from extra monies due to inflated prices. This has created dangerous real estate bubbles (and credit bubbles) in Australia, Canada, China, Singapore, South Africa, and Brazil (to name the usual suspects you will hear about on Cavuto in late 2011 and 2012).
Arguments against the impending commodity crash will say that 'world growth' drives prices higher. That is foolish. These countries have been growing for decades, not months-- their need for energy is indeed growing, but not anywhere close to the rate that energy costs are rising. Sustained growth would mean sustained price increases, not massive jumps.
See the housing boom period in the US in the chart below-- this was a wealth effect caused by a credit bubble. It created unsustainable prince increases in energy costs. As the rest of the world (minus Europe-- that is another mess completely!) experiences housing bubble crashes Oil prices will follow downward.
The US economy (like any other economy) can not have healthy organic (no QE Fed based stimulus or housing stimulus shimulus) growth with excessive energy costs.
It is the snake swallowing the house...
This will not end well...
History tells us that we are WAY out outside the normal range for energy costs. Inflation adjusted income is falling but energy costs are soaring. For real Inflation to stick it NEEDS income/ wage growth to follow or it is just increased cost to the consumer that takes away from Forever 21 sales. Do you really see wage growth at 8.8% unemployment?
It is only a matter of time before the House of Cards collapses-- June? July? Tomorrow? a few Mondays from now?.
If 2008 is any indicator, MANIA is almost achieved and ...
D O W N
W E
G O
... It is NOT different this time... Except the higher up we go the harder we fall.
The question, of course, is how much is the $25 oil from 1980 in today's dollars? While I doubt that it's $120, I suspect it's not that far off.
ReplyDeleteAlso, as we all know, the dollar is worth 30% less than it was earlier in the decade.
What percentage of our economy are energy costs today, compared to 10 or 20 years ago? I also suspect they are similar.