cause for worry/math lesson?

July 17, 2006

from: http://money.cnn.com/2006/07/17/markets/oil/index.htm

“Analysts have said the market is much more sensitive to geopolitical concerns than it used to be. That’s because limited new oil supplies coupled with surging demand have reduced the world’s spare production capacity from about 5.5 million barrels a day a few years ago to around 1 million barrels a day currently.

That means a supply disruption from, say, Iran, which produces about 4 million barrels a day, or Nigeria, which produces about 2.5 million barrels a day, could not be met by other oil-producing countries. ”

That means that a minor disruption could cause a pretty serious shock to a lot of people’s lives. Now, let’s think about this in terms of the ’73 oil embargo(which lasted for much longer of course – but at least there was a greater spare capacity AFTER it ended.)

Gas prices quadrupled in that period. Yes, That’s right, Quadrupled. Do that math for me everyone. What’s 4*$3.00? It’s $12,00, that’s right. Let’s give some wiggle room and say it won’t quadruple. Let’s say it doubles to $6.00 by the end of this year. We won’t have alternatives online in nearly enough time. What do you think will happen?

Screw expensive luxury driving. It would suggest to me that a significant portion of the people who are food insecure. Will go from JUST insecurity to “food insecure with hunger” or worse yet actual starvation.

Also, think what that kind of body blow will do to interest rates. Do we think they’ll go up or down? Do you think banks will be more or LESS interested in extending credit in an expensive-energy and energy-scarce environment? More to the point do you want to be paying off variable-rate credit card bills in that climate? Remember that the new bankruptcy laws are in place, too. Pay off your variable-rate debt. Find a way to be massively more energy efficient, start trying to build up some buffer for price shocks that could occur as a result of an oil capacity shortfall.

Also write your representative and get them to increase the minimum wage. The people nearest the bottom of the earnings brackets haven’t had a raise in 9 years. Figuring an average inflation rate of 3% you tell me what minimum wage is worth in today’s dollars? Tell me how much buffer do you think they have from being able to squeak by to being completely unable to survive? Anyone here ever live from paycheck to paycheck? Now try doing that when you have no extra space in your schedule to work anymore jobs or no way to raise the price of your labor or your product.(Nickel and Dimed).

Oh and to everyone who has told me that oil shortages can be compensated by market forces. I don’t disagree with you, in the long term, you are probably right. It’s the short term catastrophe for which the market has a damn-able time compensating. Short term catastrophes can still permanently disable millions and we’re no less culpable for the disaster.

One Response to “cause for worry/math lesson?”


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