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Thread: old theme revisited ... sustained high OIL prices = Recession

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    Default old theme revisited ... sustained high OIL prices = Recession

    (snip)"There are plenty of risks in the economic outlook right now, including global supply disruptions following the multiple disasters in Japan, sovereign debt problems in Europe, budget gridlock in the U.S., and China’s inflation and rate hikes. What economists are most worried about, though, is oil. West Texas Intermediate crude ended above $112 per barrel in New York trading Thursday before the Easter break. Brent crude, the European benchmark, was just over $124. The average price for U.S. gasoline, at $3.85 per gallon on Friday, continues its march toward the $4.11 peak hit in 2008.

    Already, rapid growth in emerging markets in Asia and South America is pressuring tight global oil supplies. That’s what pushed oil prices to $147 in 2008, adding to the problems in the U.S. economy. The Paris-based International Energy Agency in its April report estimated that effective spare production capacity within OPEC, which supplies about 40 percent of the world’s oil, stands at 3.91 million barrels per day. Based on OPEC’s March production of 29.2 million barrels a day, that means OPEC is producing at just over 88 percent of capacity – leaving a thin margin close to the level that helped drive oil prices up in the previous decade. The turmoil in Libya has already taken most of the country’s 1.7 million barrels per day off the market, and any further supply losses would be acutely felt.

    How would oil in the $140-$150 per barrel range play out? Economists say much would depend on the speed of the rise. In the U.S., a spike to that range over the narrow space of a quarter would cause a sharp pullback in consumer spending, mainly on high-priced discretionary items such as cars and home goods. The surge would generate ripple effects throughout the economy, including outsized impacts on transportation, distribution, and construction, while increasing the chance of a new recession. The recent price rise has already pushed up U.S. inflation to an annual rate of 6.1 percent from December to March, cutting spending growth sharply last quarter and hammering consumer confidence. The 40 percent spike in crude oil and gasoline has already wrecked previously upbeat forecasts for U.S. growth.

    In the U.S., the 40 percent spike in both crude oil and gasoline over the past six months has already wrecked previously upbeat forecasts for U.S. growth and inflation for the first half of 2011. Some economists believe first-quarter GDP growth, to be reported on Apr. 28, dipped below an annualized 2 percent rate and some have shaved nearly a full percentage point off their forecasts for the first half, compared to expectations only a few months ago. The worry now is that energy prices may not settle down as forecasters and policymakers have expected, which could add a further downdraft to growth and more updraft to inflation, not just in the U.S. but across the global economy.

    For now, most economic forecasts assume that the oil price spike so far is both manageable and transitory, knocking perhaps a few tenths of a percent off what global growth would otherwise have been this year and adding a few tenths to inflation. However, analysts don’t dismiss the possibility that the recent price rise could continue. Political unrest in the Middle East and Africa could intensify and create structural changes in global oil supply, and the nuclear energy disaster in Japan could shift more energy demand toward oil."(snip)

    (snip)"Looking across the global economy, separate studies at Morgan Stanley and Barclays Capital do not suggest a total derailment of the global recovery, but do imply a serious bout of 1970s-style stagflation, a combination of sluggish growth with high inflation. The Barclays analysts conclude that a rise to $150, if sustained at that level, would cut global growth by about 0.75 percentage points, while adding as much as 3 points to global inflation. Morgan Stanley, using a different approach, would expect a 1 percentage point loss of growth and 1 additional point in inflation as result of oil at $140. The global economy, including fast-growing emerging markets, is generally expected to grow about 4 percent this year; it is said to be in a recession when growth dips below 3 percent.(snip)

    (snip)"A spike in oil prices would also work against efforts to rebalance global trade. Given the already large trade deficit in the U.S., which is a major source of global trade imbalances, a bigger U.S. oil bill would only widen those imbalances further, say the Barclays analysts. However, the mix would change. Trade surpluses in China and Germany would shrink accompanied by higher inflation, but the surpluses in oil exporting nations, such as Saudi Arabia and Russia, would balloon higher.

    The big worry right now is the combination of inflexible fiscal policy and still-fragile credit markets, say the HSBC analysts, especially in developed economies. Their government budgets are already stretched and unable to offer much support in case of a recession, and their economies may not yet be strong enough to withstand the higher interest rates that central banks might use to keep inflation under control. That means a spike in oil prices could not come at a worse time, and once again the global economy is at the mercy of its oil supplies."(snip)

    from

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    Default Re: old theme revisited ... sustained high OIL prices = Recession

    did the united states ever come out of it's recession?

    (good to see you're still posting away, melonie! i was just thinking about you earlier as i map my way to becoming an ex pat!)

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    Default Re: old theme revisited ... sustained high OIL prices = Recession

    The latest numbers are NOT encouraging. GDP up only 1.8 %. Unemployment on the increase. Again ! Inflation heating up.

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    Default Re: old theme revisited ... sustained high OIL prices = Recession

    with many thanks to our 'old buddy' Karl Denninger at

    (snip)"Well here we are.....

    Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.8 percent in the first quarter of 2011 (that is, from the fourth quarter to the first quarter) according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.1 percent.

    So much for the "QE will save the economy" meme.

    When something doesn't work, and you keep doing it, what are you? (Hint: Go ask Einstein)

    The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports, a deceleration in PCE, a larger decrease in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by a sharp upturn in private inventory investment.

    No really? The govenrment's running out of the ability to deficit spend, non-residential fixed investment (that is, actual investment) is slowing, and consumption on a discretionary basis is going through the floor due to increases in the cost of food and energy.

    How many times does Ben get to be wrong again before someone puts a sock in Bernanke's money-printing machine - or a few wooden shoes?

    After all, energy cost increases were "transitory" in the 1970s too, right?

    Oh wait... maybe they're not here....

    The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.8 percent in the first quarter, compared with an increase of 2.1 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 2.2 percent in the first quarter, compared with an increase of 1.1 percent in the fourth.

    Ehhhhhh.... ok, so now that headline "inflation" is showing up in core, which is exactly what Bernanke said wouldn't happen. Again.

    This is a very weak report and if the current set of policies is maintained I would expect to see negative prints before the end of the year.

    The worse news? If we change course we also see negative prints.

    "Here it comes."

    PS: Before people point to the personal income and spend side and say "see see see!" I will simply observe that a huge part of that was from the FICA tax cut, which in turn makes the deficit worse. Pulling out the credit card does not result in actual economic improvement. It's a scam, and one that is reaching the breaking point."(snip)


    ... as well as ....


    (snip)" Heh lookie here, another "4 handle"

    In the week ending April 23, the advance figure for seasonally adjusted initial claims was 429,000, an increase of 25,000 from the previous week's revised figure of 404,000. The 4-week moving average was 408,500, an increase of 9,250 from the previous week's revised average of 399,250.

    Oh look, they revised the previous week up by a thousand too! Nice unbroken chain of revisions you have there my friends.

    Not much else to say on this one.... other than you can't make an argument for a jobs recovery when we're printing up 400,000+ jobless claims numbers on a weekly basis.

    Again: "Here it comes."(snip)


    The glaringly obvious take-away is that if/when the govt's continuing spending of borrowed money is subtracted from these figures, 'real' GDP will be negative and 'real' unemployment will spike upwards. This is basically a permutation on the old PT Barnum adage 'You can't fool ALL of the people ALL of the time' ... in that one can't accurately measure 'growth' when the dollars being used as the yardstick are shrinking faster than the stated 'growth' rate, and one can't accurately measure 'unemployment' when the number of unemployed people that are being dropped from the official US work force numbers are unaccounted for in the official statistics.

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    Default Re: old theme revisited ... sustained high OIL prices = Recession

    but IMHO one of the most important observations on the REAL state of the US economy can be gleaned from

    (snip)"NEW YORK (CNNMoney) -- Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.

    "We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact."

    Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.

    Lately, they're "running out of money" at a faster clip, he said.

    "Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.

    Wal-Mart (WMT, Fortune 500), which averages 140 million shoppers weekly to its stores in the United States, is considered a barometer of the health of the consumer and the economy.

    To that end, Duke said he's not seeing signs of a recovery yet.

    With food prices rising, Duke said Wal-Mart is charging customers more for some fresh groceries while reducing prices on other merchandise such as electronics.

    Wal-Mart has struggled with seven straight quarters of sales declines in its stores."(snip)

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    Default Re: old theme revisited ... sustained high OIL prices = Recession

    There is no doubt that Obama and his team want higher energy prices. The higher the better.
    When he was a Senator, Ken Salazar consistently opposed off - shore oil drilling. When asked by Mitch McConnell if he'd change his mind if gas prices hit $10 a gallon, Salazar said "NO". Now he is Interior Secretary in charge of leasing federal oil lands. Meanwhile, Obama promised the Brazilians that we would buy their newfound offshore oil while prohibiting American companies from drilling.

    Before he became Energy Secretary , Steven Chu repeatedly said he wanted to boost gasoline prices to European levels.

    In 2008, Obama said that under his cap & trade plan " electricity rates would necessarily skyrocket." More quotes from Obama show how breathtakingly ignorant he is about modern automobiles - "If you're complaining about the price of gas and you're only getting 8 miles to the gallon , you know, you might want to think about a trade-in ." First of all, few large passenger vehicles get only 8 miles a gallon. Second, a lot of folks are too squeezed to think about a trade - in. Again in 2008 he claimed that more drillinjg would not be necessary if "everybody was just inflating their tires and getting regular tune-ups." This is pure fantasy. There is no evidence that American tires are underinflated. Even if they were, there is nothing to prove such underinflation wastes more gasoline than what would be gotten from more off-shore drilling. Modern cars do not need regular tune-ups. Most can go from 75,000 to 100,000 miles before needing a tune-up.

    Nothing shows the disconnect between the Obama Adminsitration and the real world better. Obama has never run a business and neither have his appointees. Most come from academia or other government jobs. Thus the price that businesses, that actually employ people, have to pay for gas and other forms of energy is totally foreign to these people. They literally have no idea, no clue, what it's like out there in the real world.

    Funniest of all is Obama's new task force to investigate oil speculators. He and Bernancke have had a much bigger impact on current oil prices than commodity traders.
    Last edited by Eric Stoner; 05-03-2011 at 07:51 AM.

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    Default Re: old theme revisited ... sustained high OIL prices = Recession

    from

    (snip)"Shell Oil Succumbs To EPA Tyranny In Alaska. Is Texas Next?

    Earlier this week, Shell Oil Company announced it must scrap efforts to drill for oil this summer in the Arctic Ocean off the northern coast of Alaska. The decision comes following a ruling by the EPA’s Environmental Appeals Board to withhold critical air permits. The move has angered some in Congress and triggered a flurry of legislation aimed at stripping the EPA of its oil drilling oversight.

    Shell spent five years and nearly $4 billion dollars on plans to explore for oil in the Beaufort and Chukchi Seas. The leases alone cost $2.2 billion. Shell Vice President Pete Slaiby says obtaining similar air permits for a drilling operation in the Gulf of Mexico would take about 45 days. He’s especially frustrated over the appeal board’s suggestion that the Arctic drill would somehow be hazardous for the people who live in the area.

    “We think the issues were really not major,” Slaiby said, “and clearly not impactful for the communities we work in.”

    The closest village to where Shell proposed to drill is Kaktovik, Alaska. It is one of the most remote places in the United States. According to the latest census, the population is 245 and nearly all of the residents are Alaska natives. The village, which is 1 square mile, sits right along the shores of the Beaufort Sea, 70 miles away from the proposed off-shore drill site.

    The EPA’s appeals board ruled that Shell had not taken into consideration emissions from an ice-breaking vessel when calculating overall greenhouse gas emissions from the project. Environmental groups were thrilled by the ruling."(snip)


    Note the 'unspoken' point here ... that the US gov't willingly accepted 2.1 BILLION dollars in lease payments from Shell Oil on the implied promise that the leased lands could and would result in additional oil production = corporate profits. Obama's directive to the EPA is arguably the direct equivalent of a 'bait and switch' scam, since there are no plans for the US gov't to repay the 2.1 billion previously collected from Shell Oil !!!

    Also, between the non-issuance of Gulf Oil drilling permits and the imposition of new ( non-legislated ) EPA mandates, all of the major oil companies are becoming increasingly leery of making additional long term investments in US oil exploration. This guarantees that Americans will be paying premium prices to import oil from Brazil, Cuba and other successful offshore oil explorations in future years, in addition to guaranteeing that ( future ) US oil production and support jobs will be outsourced to foreign contries that actually allow oil drilling !!!

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    Default Re: old theme revisited ... sustained high OIL prices = Recession

    How soon we forget ! When the Bush The Dumber was still President and gas went over $4 a gallon, he singlehandedly kicked the feet out from under of the speculators. How ? He released a modest amount of oil from the Strategic Petroleum Reserve ( like Clinton did in 2000 to try and help Gore get elected ) and he liberalized off-shore drilling regulations. Oil went from over $140 a barrel to $32. His policy was also helpedby a stronger dollar as there was a "flight to quality" going on at the time in response to the financial crisis.

    Obama could do the same thing and cut oil prices by at least a third. That is WITHOUT Geithner and Bernancke doing anything to strengthen the dollar. If they did, we could see a 50% reduction in oil prices.

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