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Andrew Oswald

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Guest Time 2 raise Interest Rates

Was planning on taking some time out from HPC but couldn't resist this article as it was written by Anthony Hilton, Financial Editor of the Evening Standard, the same Anthony Hilton who was telling us a couple of months ago that now was a good time to buy property.

Andrew Oswald, an economics professor at Warwick, has a chart he uses to scare people. It shows how everytime in the past that the oil price has soared, so has unemployment a couple of years later. His message is stark - in 1973, in 1979 and again in 1990, high oil prices lead directly to recession in the global economy.

The modern world runs on black stuff, he says. Look out of the window if you don't believe it. The more the world becomes global, the further things have to be moved, and every mile costs money and burns fuel.

Nor is it just about transport, fuel surcharges on airlines or queues at the petrol pumps. That is just the beginning, but the use of oil runs very much deeper. Crude is a key input into a host of other things, not least in creating other power sources.

Half the electricity in this county is generated in oil and gas plants. And guess what? The cost of electricity is soaring with price rises of 30 per cent or more in the piepline for home and industrial users, so you can't escape simply by leaving the car in the garage and buying a bike.

The economic reality is that when costs rise, as they now are, companies have a stark choice. They can do nothing and go out of business. They can try to pass the cost on to customers. Or they can look for ways to make savings elsewhere - which normally means sacking people.

Whichever route they choose, it's bad news, and it is pretty inescapapble. If everyone has to spend more on energy they have less to spend on other things. Sales drop and the economy tanks.

Interestingly, Chancellor Gordon Brown speaking on television at the weekend took a similarly gloomy view. Normally he is totally upbeat about the economy, but not this time. The oil crisis is as dangerous now as it was in the 1970s, he said.

Except this time it might be different. What Oswald says was true in the past, say rival academics, but the world has moved on. Oil accounts for a much lower proportion of output than it did 30 years ago and we use it much more efficiently.

We have in this country, particularly, much less heavy industry and many more hairdressers - and the only oil they use comes from seeds and gets rubbed into the customer's scalp. Besides, though $70 a barrel is the highest it has ever been in money terms, the figure is deceptive. For oil to be actually as expensive in real terms and have the equivalent shock effect as it did 30 years ago the price needs to rise to $120 or more. Crisis, they ask. What crisis?

Oswald has a colourful answer to this. It misses the point to say it is not as bad this time, he says, because the effect is still devastating even at the reduced level. It is like playing Roger Federer at tennis. Challenge him today in his twenties and he will annihilate you. Challenge him when he is 60 and he will be much less of a player. But he will still annihilate you.

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Interestingly, Chancellor Gordon Brown speaking on television at the weekend took a similarly gloomy view. Normally he is totally upbeat about the economy, but not this time. The oil crisis is as dangerous now as it was in the 1970s, he said.

Never a frown with Gordon Clown.

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We have in this country, particularly, much less heavy industry and many more hairdressers - and the only oil they use comes from seeds and gets rubbed into the customer's scalp.  Besides, though $70 a barrel is the highest it has ever been in money terms, the figure is deceptive.  For oil to be actually as expensive in real terms and have the equivalent shock effect as it did 30 years ago the price needs to rise to $120 or more.  Crisis, they ask.  What crisis?

I don't buy this argument, it's like walking into the pub, asking for a pint of the black stuff and the barman saying "that's £50 please sir", "that's bloody expensive!", "Well, not really Sir, in real terms I should be charging you £80, you've got yourself a bargain!".

It's not just about the crest of the spike it's how long the prices remain high, much better for oil to spike at $80 then come down after a month than have them constantly north of $50 for months/potentially years on end.

Edited by BuyingBear

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Except this time it might be different.  What Oswald says was true in the past, say rival academics, but the world has moved on.  Oil accounts for a much lower proportion of output than it did 30 years ago and we use it much more efficiently.

We have in this country, particularly, much less heavy industry and many more hairdressers - and the only oil they use comes from seeds and gets rubbed into the customer's scalp.  Besides, though $70 a barrel is the highest it has ever been in money terms, the figure is deceptive.  For oil to be actually as expensive in real terms and have the equivalent shock effect as it did 30 years ago the price needs to rise to $120 or more.  Crisis, they ask.  What crisis?

Wrong on two counts. We have, in this country, MANY more fossil fuel consuming vehicles on the road. We have, in this country, many more airplanes travelling many more miles. Industry might be smaller, but the British appetite for oil is not and all this will lead to inflation and THAT is where the problem is. That leads me on to the other problem. The Economist recently showed that oil prices are in historic highs by some measures (world export prices and US producer prices). Finally, Oswald's example is more like playing McEnroe in his forties and he is (more than usually) irritable and you are having bad day.

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Wrong on two counts. We have, in this country, MANY more fossil fuel consuming vehicles on the road.

In the case of motoring this hasn't actually resulted in a massive growth in fuel consumption, the rise in fuel efficiency has actually offset the growth in the number of cars on the road.

In 1980 motoring consumed around 19m tons of fuel, that has risen to around 21m per annum, today.

Edited by BuyingBear

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Wrong on two counts. We have, in this country, MANY more fossil fuel consuming vehicles on the road. We have, in this country, many more airplanes travelling many more miles. Industry might be smaller, but the British appetite for oil is not and all this will lead to inflation and THAT is where the problem is. That leads me on to the other problem. The Economist recently showed  that oil prices are in historic highs by some measures (world export prices and US producer prices). Finally, Oswald's example is more like playing McEnroe in his forties and he is (more than usually) irritable and you are having bad day.

Also - the situation today is caused by BOTH global supply and global demand. In the 70s it was driven by the supply-side only. And the key word here is global.

Edited by Starcrossed

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Here's my chart that I use to scare people.

It shows how every time in the past when the housing market tanks, unemployment soars a couple of years later, along with recession.

My message is stark, 1973, 1979 (or 80), and 1990, a collapsing housing market lead directly to a recession in the British economy.

Come on, it's not rocket science.

When is some journo going to pick up on this?

(ps: next recession 2006)

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According to the US DoE, total consumption of oil in the UK is now higher than at any point in the past, as, of course, is gas.

Hrm, oil consumption looks pretty flat to me (red line), remember we were an oil exporter until recently so the production figures do not reflect domestic demand :-

uk-oil_production-small.gif

Also, motoring is only a proportion of that consumption figure.

The current oil price is a reflection of demand, but that demand isn't from this country, our problem is that our moderate demand levels are no longer being met by the North Sea so we're having to compete for our supplies. We could cut our demand by half but that pales in comparison to the US, Japan and China so it wouldn't impact the price signifcantly, we're just a small boat in a big sea.

Edited by BuyingBear

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He has baked a recession into the cake,

AND now he wants to blame someone else for the receipe

Our Gordie is definitely not stupid.

This fuel rise gives him the perfect excuse for a recession that was already well on the way.

This way he still gets to look like it wasn't his fault.

Exactly what I would expect from a politician, but such is life in the world of 5 year politics.

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Hrm, oil consumption looks pretty flat to me (red line), remember we were an oil exporter until recently so the production figures do not reflect domestic demand :-

uk-oil_production-small.gif

Also, motoring is only a proportion of that consumption figure.

The current oil price is a reflection of demand, but that demand isn't from this country, our problem is that our moderate demand levels are no longer being met by the North Sea so we're having to compete for our supplies. We could cut our demand by half but that pales in comparison to the US, Japan and China.

The point is that high oil prices WILL STILL impact the economy in at least the same way as previous recessions. 36% of UK energy is oil. It was 41% in 1980. Add in the amount now used by gas (much higher than 1980) and the impact is clear. Just because industry is a smaller proportion of GDP doesn't mean high oil prices will have a lower impact than before.

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"Interestingly, Chancellor Gordon Brown speaking on television at the weekend took a similarly gloomy view. Normally he is totally upbeat about the economy, but not this time. The oil crisis is as dangerous now as it was in the 1970s, he said."

SURE.

He has baked a recession into the cake,

AND now he wants to blame someone else for the receipe

"MacArthur's Park is melting in the dark

All the sweet, green icing flowing down...

Someone left the cake out in the rain

I don't think that I can take it

'cause it took so long to bake it

And I'll never have that recipe again

Oh, no!"

:lol:

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Hrm, oil consumption looks pretty flat to me (red line), remember we were an oil exporter until recently so the production figures do not reflect domestic demand :-

uk-oil_production-small.gif

2M barrels/day. That's about 5.5 litres/person/day. Anyone else freaked out by that?

Second thing is, why do we export this finite resource? Why not just save it so we can keep going as long as possible? Surely that is better than the short term cash gains.

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Our Gordie is definitely not stupid.

This fuel rise gives him the perfect excuse for a recession that was already well on the way.

This way he still gets to look like it wasn't his fault.

Exactly what I would expect from a politician, but such is life in the world of 5 year politics.

Also, if inflation rises too much Merv has to write a letter of apology to Gordy 'explaing why'. The MPC has to go to the headmaster office, head bowed and accept their caining. By creating the illusion of independence the BoE has set itself up as the sacrificial lamb, that was always an insurance policy that could be called on.

No wonder Merv is covering his ar$e and voting against the Brown's appointees who brought about August's cut, he has also disupted this year's projected GDP figures, HM Treasury still expects its 3.5%. Remember, Brown decides who sits on the MPC, their target rate and their yard stick.

By understating inflation you overstate GDP, so this is now a double problem for Brown. Expect some rumblings at the ONS, or another change of the measure. Today's figure was already nicely cooked.

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The point is that high oil prices WILL STILL impact the economy in at least the same way as previous recessions. 36% of UK energy is oil. It was 41% in 1980.

Oh indeed, even if our consumption isn't growing significantly a rise is price for existing consumption is devastating enough.

Just goes to show that oil demand isn't really coming from us, indirectly because we don't source so much from the North Sea we are contributing to the growth in demand even if we're not using any more than usual.

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Second thing is, why do we export this finite resource? Why not just save it so we can keep going as long as possible? Surely that is better than the short term cash gains.

cos it's market driven and the companies who find/process the oil would simply export it to whatever country they could get the highest price in. we wouldn't get ANY unless we were prepared to pay what the rest of the world does.

now if BP was still a public company............

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  • 336 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%



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