The horizon is not so far as we can see, but as far as we can imagine

Oil Prices and the economy for the next year to a year and a half

Quick note, given I think that the economy is going to roll off a cliff in the new year, and soften between now and then, that means I think that oil prices are going to drop further.  I won’t be surprised to see them go under $50/barrel, unless something stupid like war with Iran happens.

Bernanke’s going to have to do quantitative easing again (aka. give money to banks) and may have to bail out Europe, since Europe probably won’t bail themselves out.  If Romney wins, Bernanke stands a good chance of losing his job, and he really doesn’t want that.  The conservative inflationist who replaces him won’t be noticeably different for the rest of the world, but if Bernanke is fired it’ll be the end of his legacy.  Yes, his legacy is depression no matter what, but he doesn’t see it that way, he thinks he can move to a stable Japanification scenario.  He can’t, but eh.

Oil prices dropping further will cause widespread unrest in the oilarchies, so expect more uprisings.  Also expect more slaughters.  The lesson of Mubarak is that if you give up power, you’re going away for life, so you might as well fight.  Lower oil prices will push Canada’s economy into the dirt, as well, but Harper has years to go on his mandate, so whatever.  A lot of oil sands projects will go bankrupt or into hiatus.

How long will the downturn last?  I don’t know.  Dropping oil prices means that there is room for growth, but the oligarchs want austerity so they can buy up more public goods and services on the cheap.  Privatization is the order of the day, and bankrupt states are what they want.

China has lost patience with the West. If the West won’t stimulate, then China doesn’t see why it should be required to carry the rest of the world’s economy on its back.

Things are going to get FAR worse before they get better.  That doesn’t mean there won’t be recoveries, there may even be a bit of one this year, but none of them will last, and none of them will do much good for anyone earning less than 6 figures.


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  1. Why are oil prices dropping? Has the economic slump depressed demand that much?

  2. rumor

    In a word, yes, especially in the United States, which is the major consumer.

  3. Just reading how Spain was been shut out of the markets. “The market” is demanding a rate on Spanish debt north of 5%—an historically low rate by all accounts, but devastating to that nation’s fiscal picture. That’s just evidence of how massive their debt load is. I get the feeling that one by one, nations are getting picked off after having been set up— not unlike the sorts of practices that went on for years in Africa and South America. Actually, I’d argue that the skills of the banksters/oligarchs were honed in those continents and that’s a reason, beyond simple justice, why it’s never wise to be silent where injustice exists. Ultimately, the skills developed exploiting others will arrive at your doorstep soon enough.

    We’ve moving into a reset here and the new world emerging will be a worldwide system of lords and serfs. There’ll be plenty of people pissed off and revolts here and there, but the lords are prepared, having honed those skills also in the third world as well as having bought lock, stock and barrel the political systems—yet another skill honed from practice elsewhere. This will be a long brutal slog characterized by social upheaval and uncertainty.

  4. Thanks.

    By the way, there’s a school of thought that Obama is more likely to attack Iran that Romney:

  5. Ian Welsh

    China’s industrial production is also dropping. That’s the real issue, everyone has been counting on China to provide the world growth engine.

  6. paul

    China requires other, developed economies to prop up their growth, so no surprise they’re going down too.
    What is surprising is that ‘developed’ economies don’t just get together and say ‘fuck this shit!’ and decide not to pay the banks and return them to public ownership.
    The banks have only been able to bully the countries that they have so far because they’ve been developing economies that need the compliance of banks and developed economies. Once banks start playing that game with the big boys they will get burned. Surly?

  7. >>>What is surprising is that ‘developed’ economies don’t just get together and say ‘fuck this shit!’ and decide not to pay the banks and return them to public ownership.<<<

    If left up to the people, the banks would have been made to take a hike long ago. Unfortunately, the banks have installed their technocrats and/or have bought off the political class. Everything has been set up for the oligarchy to grab the resources while most citizens (I'm speaking mostly of those here in the US) are sleepwalking on sports, entertainment or other diversions. You know what I feel like sometimes?—the biblical Noah as I gather my two of each as I prepare to escape the deluge. It's a rather lonely existence to understand what's going down while others are running around regurgitating the talking points for the upcoming elections.

  8. Mary Mac

    Yes, Greg L, it is hard to move through a life and know that the people around you are in zombieland when it comes to their own well being.

  9. Jumpjet

    I wonder if it’s not going to take a whole generation dying before things get any better, for more than one reason. That’s what it looks like sometimes, eh?

  10. Oil wil not go below $50/bbl and probably not below $60/bbl. The sagging economy will try for those price levels, but the producing states will not allow that to happen.

  11. Jeff Wegerson

    So China. Aren’t they big enough and developed enough by n0w to go it alone? Couldn’t they become their own customer, their own export market? Since they have their own currency couldn’t they stimulate their own demand?

    Is it that their ruling class isn’t interested or is it that their ruling class lack the economic understanding?

  12. Bolo

    Jeff: Their current strategy of export requires cheap labor and terrible labor conditions, so they need to keep wages low and keep just enough people desperate. This also means they keep their own domestic demand low. The trick is in transitioning to a higher demand domestic economy, which requires them to raise wages, raise export costs, and likely lower exports, etc.

    They may not know how to do that or may have become too wedded to the current system to change. If the former, then hopefully they figure it out (note: I don’t have a solution). If the latter, then they’re going down with the rest of us.

  13. Jeff & Bolo: Depends on where we are on the resource depletion curve – while China’s probably “good” on precious metals for awhile, I’m not so sure about energy (which is required to extract & process said metals, BTW). That’s a pretty big population on which to crank up the economic growth model. Given China’s historical tendency towards prudence (relative to the West, of course), I’m not so sure they’d take that obviously fatal step.

    Of course, they will be “going it alone” just like the rest of us will, real soon – but I don’t think that that will look quite like what we normally might think…

  14. Vi

    They may not know how to do that or may have become too wedded to the current system to change.

    Considering that increasing its internal consumption would necessarily involve, given China’s size, a larger and larger share of the world’s resources heading towards themselves in preference to the U.S., that course likely involves the latter declaring them “evil”, as it has been want to do to countries of late, and possibly involves a major becoming the subject of a nuclear attack. (The “Asian pivot” is probably largely a way of bolstering the geopolitical credibility of such an outcome.)

    I do wonder if the recent purge of a popular high-ranking official who wanted to speed up internal development may have some relevance here. The peculiarly widespread coverage of said purge in the Western media, and its peculiarly enthusiastic tone, would suggest as much.

    (I also wonder sometimes if people such as Bolo and Jeff Wegerson above are really as innocent of such unseemly considerations as the tenor of their comments would imply they are.)

  15. Vi

    Er “…involves becoming the subject…”

  16. Jeff Wegerson

    @Bolo, then my next question became: why do they have to follow the consumerist model of middle classness, why not rather a less resource intense one? But right that certainly requires a level of sophistication possessed by few.

    But then I read @Vi and was reminded of those “unseemly considerations” of the U.S. forcing limits to out-of-the-box thinking that I had let slip out of my focus.

    Thanks gentle”men?”

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