Monday, August 4, 2008

Behind every silver lining…

Falling oil prices: The downside

Oil prices are falling sharply, and that's good news. But not nearly as good as you might think. No doubt the drop, down to $120 by mid-day Monday, gives strapped consumers relief at the gas pump. Prices have dropped below 54p per litre and could be headed toward 47p. Any decline will be welcomed by Americans struggling under the burden of falling house prices, rising layoffs and stagnant wages. But falling oil prices also suggest that the recession the U.S. has so far avoided is well on its way, as consumers pull back from the spending spree that drove economic growth. A drop in the price of oil won't bring back many of the jobs lost over the past year to the energy-cost surge. Even were gas to fall 40p/L, no one is going to beat a path to the dealership to buy pick-ups and SUVs.

Posted by little professor @ 10:10 PM (923 views)
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13 thoughts on “Behind every silver lining…

  • little professor says:

    Just thought I’d “translate” the American prices from USD/gallon to GBP/litre. Don’t know what they have to bleat about.

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  • last_days_of_disco says:

    We are getting through the inflation spike. Now for something that will blow your mind. Deflation.

    People won’t know whether to laugh or cry.

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  • last_days_of_disco says:

    Hold onto your cash with both hands.

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  • if inflation makes my savings worth less, then does deflation make them worth more?????

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  • a lecture on deflation from the aptly named mr Fukao
    “Under deflation, cash savings are very attractive because falling prices means cash will go further”
    http://www.toronto.ca.emb-japan.go.jp/english/news/infocul-news/fukao.html
    Reknowned Japanese Economist Addresses Deflation by Mitsuhiro Fukao

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  • little prof,

    Please don’t translate the prices like that, I’m weeping at the prospect of such cheap petrol! At first I thought you’d mixed US gallons with Imperial (UK) gallons, but your figures are accurate. As you say, I really don’t know what they’re complaining about either.

    For some Americans even 47p a litre is expensive. The federal minimum wage is just $6.55 (£3.34) per hour, compared to £5.52 an hour in the UK. To give credit where it’s due, one of the first steps taken by New Labour was the National Minimum Wage Act in 1998.

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  • “if inflation makes my savings worth less, then does deflation make them worth more?”

    Don’t worry. Just stand by. Your savings in real terms will be eroded, perhaps massively.

    Better for the elites, eh?

    Who do you think is in control?

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  • Confused with comment no7 from Wren….
    If sitting there with cash whilst everything deflates in value surely “cash is king”.
    I do understand that the “home” curency will devalue but how will your savings be eroded?
    Please explain.

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  • tyrellcorporation says:

    Gordon will start to see his tax revenue from oil shrink away! He secretly loved high oil prices. ‘I feel your pain’ – what a joker.

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  • stillthinking says:

    Deflation makes your savings worth more, and your wage worth more, but your workplace might go bust, which is the major niggle.

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  • Ycantibeenglishonaform says:

    excuse me drewster, I usually agree with your comments. But hang on a minute….

    “To give credit where it’s due, one of the first steps taken by New Labour was the National Minimum Wage Act in 1998.”

    IT HAS PROVEN TO BE THE FINAL NAIL IN THE COFFIN FOR UK INDUSTRY, all these idiots that worked for rover and similar companies campained for years with unions to improve conditions and pay etc, for what? all they achieved was to put themselves out of work. HA HA HA to them short sighted penny pinchers.

    If you add employer contributions to the minimum wage then even a school leaver with one whole brain cell used for menial tasks costs UK manufacturers too much.

    unfortunately all social groups have people who are not worth more than £2 per hour yet we now must pay even them £5+ per hour or the government will out of our tax. society doesnt work without poor and very poor people in it i’m afraid is the reality, human rights will destroy us.

    sorry people off topic I know, just felt the need to rant.

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  • The only reason the price of oil has gone down is because of demand destruction. The knockon effect of this is throughout the economy, most readily through rising unemploymet.
    Stability of oil prices is required, at whatever level. However that is an exceedingly unlikely scenario. There is a lot more pain on the way.

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  • Oil was a speculation bubble just like housing. Sugar, cotton, coffee, cocoa, canola are all showing falls as well (canola fallen 7% today according to the ICE homepage at https://www.theice.com/homepage.jhtml – hover over Canada). The markets are structured such that you never actually have to collect the commodity – futures trading is paper trading.

    The inflation and deflation as measured against commodities has been largely due to price ramping by speculators. They’ve been found out and are starting to run scared of government intervention – they’re getting the hell out before government confiscates it, I suspect partly in the hope that the governments will decide that the market is working properly and not regulate.

    Links: http://hsgac.senate.gov/public/_files/052008Masters.pdf, http://hsgac.senate.gov/public/_files/062408Masters.pdf

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