The Reagan Play
The Reagan play, in the last period of high oil prices was this: crush the economy and bring new sources of hydrocarbons online.
This is also Obama’s play: fracking and other unconventional hydrocarbon sources are being ramped up massively, while austerity crushes resource demand. China is buying a lot less resources.
I called for falling oil prices before and was wrong about when it would happen, but I remain convinced it will happen. The hardest thing to do is to predict not what, but when.
This does not mean that hydrocarbon prices in the long run are going to drop, they aren’t. But in the mid terms, for a few years, they will.
This won’t do much good for ordinary Americans, because they won’t see almost any of the gains, their lords and masters will take most of it.
This crash will lead to challenges for many countries, most interestingly South American countries like Venezuela and Argentina which have been riding the resource boom and engaging in resource socialism. They need to diversify their economies. I doubt Venezuela will manage it, Argentina may, if the people running Argentina learn some humility. This will also hurt the oil patch up here in Canada (primarily Alberta) and upset the political calculations of our Conservative party. Russia, various Middle Eastern countries and so on will also have their problems.
All resource booms end. All of them. The question is only when. The widespread slowdown, and especially the Chinese slowdown (which is hitting S. America hard), indicates we are likely close to the end of this boom period.