Why Should a Decline in Oil Prices be Bad?

The dramatic fall in the global price of oil is being cited by the financial press, government officials, and academia as the catalyst for the recent abysmal U.S. economic data which shows that the economy is, in all likelihood, sliding into a recession or worse.

 

Oil_cartoon_12.09.2014_largeOil prices in dire straits…

 

While falling oil prices sound like a plausible explanation for the abysmal financial numbers, anyone with a modicum of economic sense (which excludes much of the financial Establishment) can see that it is merely a smokescreen to obfuscate the real culprit.

The fall in oil prices, while detrimental to many oil producers, should actually be a boon for the rest of the economy, especially those industries that are heavily reliant on energy. Lower fuel prices mean lower production costs leading to, ceteris paribus, greater output.

 

1-Gasoline, weeklyThe price of gasoline has declined precipitously – click to enlarge.

 

For consumers, lower oil prices mean lower utility bills and cheaper gasoline, both of which mean more disposable income for either savings or more consumption. Why would greater disposable income lead to a recession?

Naturally, lower prices are not good for oil producers. But a decline in one sector of the economy (albeit an important one), does not lead to a general collapse. While the energy sector may be contracting, industries that use fuel should be able to expand as their production costs fall.

 

Kipper Williams cartoon 6 January 2015What constitutes great news in oil exploration nowadays

 

The Pseudo-Prosperity of the Printing Press

The Federal Reserve’s Quantitive Easing (QE), Zero Interest Rate Policy (ZIRP), Operation Twist (OT), and their variations have created a massive bubble in asset prices which is now beginning to burst. All of these polices have been undertaken to save the banking system from collapse after the crisis of 2008. Since the start of the Great Recession, none of the problems that have led to it have been addressed.

Not only has the stock market been artificially inflated by the Federal Reserve, but it has come at a devastating cost in the decimation of savers, as the return on their money has dropped to next to nothing. This, of course, has had debilitating consequences on retirees and seniors.

 

2-TMS-2 plus FF rateBroad US money supply TMS-2 and the Federal Funds rate – click to enlarge.

 

The Obama Administration, with little opposition from Republicans, has increased the federal deficit to nearly $20 trillion from the $9 trillion it had inherited with little or no hope of any reduction. Its wasteful stimulus program of a few years ago has done nothing to improve conditions while its collectivist health care initiative has placed crushing burdens across the economic spectrum.

What is even scarier is that Obama is apparently clueless about current economic conditions, as he mindlessly demonstrated in his (thankfully) last State of the Union Address:

 

“Anyone claiming that America’s economy is in decline is peddling fiction. What is true – and the reason that a lot of Americans feel anxious – is that the economy has been changing in profound ways, changes that started long before the Great Recession hit and hasn’t let up.”

 

Obama is correct in one sense: there is a “profound change” that is happening in the economy, however, it is a change for the worse which he and his harmful policies have created.

 

3-Federal DebtFederal debt since the 1990s – Obama took office in January 2009 – click to enlarge.

 

Not surprisingly, in their rebuttal to the speech, the Republicans offered little in substance. Instead, they chose a spokesperson whose only claim to fame was her infamous decision as governess of South Carolina to remove the Confederate flag from state buildings. Needless to say, the choice of Nikki Haley met with disgust among the party’s base. The GOP is not called the “stupid party” for nothing!

Unfortunately, for the vast majority of Americans, there is little likelihood that the present Administration or the next, be it of a different party, will turn things around. Instead, there will probably be more of the same.

Until there is a change in ideology where the corrupt notions of money and credit creation via the printing press and the running of gargantuan deficits are debunked, American living standards will never improve.

 

Charts by stockcharts, St. Louis Fed

 

Chart and image captions by PT

 

Antonius Aquinas is an author, lecturer, a contributor to Acting Man, SGT Report, The Burning Platform, Dollar Collapse, The Daily Coin and Zero Hedge. Contact him at antoniusaquinas[at]gmail[dot]com https://antoniusaquinas.com/.

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

One Response to “Falling Oil Prices Not the Reason for U.S.’s Economic Woes”

  • All-Your-Gold-Are-Mine:

    The sad thing is that the very one accusing others of “peddling fiction” if they don’t agree with his Socialistic views is the Commander In Chief of the “Peddlers of Fiction”… Obama is an incompetent buffoon to say the least…. sigh.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 21st Century Shoe-Shine Boys
      Anecdotal Flags are Waved   "If a shoeshine boy can predict where this market is going to go, then it's no place for a man with a lot of money to lose." - Joseph Kennedy   It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if...
  • Christopher Columbus and the Falsification of History
      Crazed Decision The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.   Christopher Columbus at the Court of the Catholic Monarchs (a...
  • The Forking Paradise - Precious Metals Supply and Demand Report
      Forking Incentives A month ago, we wrote about the bitcoin fork. We described the fork:   Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!   BCH, son...
  • The Government Debt Paradox: Pick Your Poison
      Lasting Debt “Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”   Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo...
  • India: The Genie of Lawlessness is out of the Bottle
      Recapitulation (Part XVI, the Last) Since the announcement of demonetization of Indian currency on 8th November 2016, I have written a large number of articles. The issue is not so much that the Indian Prime Minister, Narendra Modi, is a tyrant and extremely simplistic in his thinking (which he is), or that demonetization and the new sales tax system were horribly ill-conceived (which they were). Time erases all tyrants from the map, and eventually from people’s...
  • The United States of Hubris
      Improving the World, One Death at a Time If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.   Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial...
  • Long Term Statistics on AAPL
      Introductory Remarks by PT Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of...
  • Tragedy of the Speculations
      The Instability Problem Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future. In fact, it is not.   A tragedy... get the hankies out! :) [PT]   Why not? To answer, let us start with a look at the incentives offered by bitcoin. We saw a comment this week, which is apropos:   "Crypto is so...
  • Despite 24/7 Trading: Bitcoin Investors are Taking off for the Weekend on Friday Already
      Crypto-Statistics In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.   Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to...
  • Precious Metals Supply and Demand
      Fundamental Developments There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30. Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.   Gold and silver prices in USD terms (as of last week Friday) - click to enlarge.   Next, this is a...
  • To Hell In A Bucket
      No-one Cares... “No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week.  “You keep writing about it as if anyone gives a lick.” We could tell he was just warming up.  So, we settled back into our chair and made ourselves comfortable.   The federal debtberg, which no-one cares about (yet). We have added the most recent bar manually, as the charts published by the Fed will only be updated at the end of the...
  • Precious Metals Supply and Demand
      Back to the Happy Place Amid a Falling Dollar The prices of the metals dropped this week, $24 and $0.38. This could be because the asset markets have returned to their happy, happy place where every day the stock market ticks up relentlessly.   Sometimes, happiness is fleeting... - click to enlarge.   The major currencies have been rising all year—we insist that this is a rise in these dollar derivatives, not a fall in the dollar—and this is a risk-on pattern....

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com