Jump to content
House Price Crash Forum
Sign in to follow this  
TimG

Aug 27th Economist

Recommended Posts

"...The optimists point to a host of reasons for why "this time is different" and why high oil prices will not trigger a global downturn. For example, it is claimed that in real terms, adjusted by consumer prices, oil is still cheap. Most businessmen reckon that is tosh: relative to producer-output prices, real crude oil prices are now close to a record high (see page 65). In any case, the notion that rising oil prices have no economic impact until they hit the previous peak in real terms is ridiculous.

Roll out the barrel

The main reason why high oil prices have so far not kiboshed the world economy is that cheap money has supported spending sprees and housing bubbles in many countries, notably America, which have offset the impact of dearer oil. The two main engines for the world, the United States and China (also the two biggest oil consumers), have both had their growth boosted by lax monetary conditions in the past couple of years. Indeed high oil prices can partly be seen as a consequence of low interest rates. The two most important prices in the world economy are the price of oil and the price of money, and they are linked. If interest rates are abnormally low (in bond yields as well as short-term rates), then as global demand increases in response, oil prices should rise--especially if production capacity is tight, as it is today....."

http://www.economist.com/printedition/disp...tory_ID=4316744

Share this post


Link to post
Share on other sites
"...The optimists point to a host of reasons for why "this time is different" and why high oil prices will not trigger a global downturn. For example, it is claimed that in real terms, adjusted by consumer prices, oil is still cheap. Most businessmen reckon that is tosh: relative to producer-output prices, real crude oil prices are now close to a record high (see page 65). In any case, the notion that rising oil prices have no economic impact until they hit the previous peak in real terms is ridiculous.

http://www.economist.com/printedition/disp...tory_ID=4316744

I agree. But the businessmen have it wrong.

Oil is cheap - about 10p per pint.

In about 2 years people will realise just how cheap it was.

The general public dont look at spending "relative to producer-output prices" only at what they can afford. The "no economic impact" has some merit. If people dont know prices are near record highs, they arent bothered.

Look at the housing market - it moved above trend about 3 years ago and we are only beginning to see large scale realisation of this.

As Bubb said before - and I agree - its all built on sentiment.

Share this post


Link to post
Share on other sites
Guest magnoliawalls
As a result of low interest rates, America and some other economies have enjoyed a boom in house prices, accompanied by a surge in household borrowing and a falling saving rate. Higher oil prices have acted like a tax on consumers, leaving them less money to spend on other goods. But in America this has been fully offset by borrowing against soaring home prices. This explains why higher oil prices appear to have depressed domestic demand by more in Europe than in America: in most euro-area economies there has been little or no cushion from increased borrowing against property.

The fact that America's economy has been able to shrug off higher oil prices mainly as a result of a housing and mortgage bubble is hardly a comforting thought. What happens when house prices flatten, or even fall? Consumers will then feel the full force of dearer oil. Come to think of it, a further spike in oil prices could even be what pops the housing bubble, if it unsettles consumers enough. So far, the rising oil price has done little harm; but worse may well be on the way.

source

Perhaps Kaletsky was wrong after all...

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.