The popping of the housing bubble got us into this financial crisis, but now the popping of the oil price bubble may help us get out. Oil prices have dropped by more than 50% since they peaked last July! Arab Light has collapsed from a high of $143 in July to $62/bbl. today. Oil futures prices have collapsed from $145 to $69. This chart shows prices adjusted for inflation. In inflation-adjusted terms, oil prices today are cheaper than they were in the early 1980s. Considering that the U.S. uses about half as much oil today per unit of output as it did back then, oil is rapidly on its way to becoming cheap again.
This is just the latest example of how government is stupid. Now that the politicians have got everyone worked into a frenzy about how we have to eliminate our foreign dependence on oil, how we have to stop sending $700 billion a year to governments that support terrorists, etc., the problem has all but disappeared. The free market figured this out while the politicians were just coming up to the speed on the problem. Consumption has dropped, supplies and inventories have risen, and presto: problem solved. At least for now.
Oct 17, 2008
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ReplyDeleteThe free market figured this out while the politicians were just coming up to the speed on the problem.