Gail Tverberg: Why Low Oil Prices Will Not Stimulate The Economy

31 Comments on "Gail Tverberg: Why Low Oil Prices Will Not Stimulate The Economy"

rockman on Tue, 2nd Feb 2016 6:36 am 



I know her positions so I didn’t bother to listen again. But upon reflection I can understand at least what may be part of the argument. IOW what have lower oil prices taken away from the economy: hundreds of thousands of high paying jobs, $TRILLIONS (if low price persist for a number of years) in lost revenue by oil patch companies, refineries and retail fuel sales, royalty owners and taxes paid to various govt agencies (the state of Texas alone will see a reduction of $3+ BILLION per year).

But, of course, consumers will send much of those lose back into the economy. But historically this is a rather slow process and can take years to provide a boost. Unlike the losses to the economy which essentially happen immediately.

Davy on Tue, 2nd Feb 2016 8:17 am 



This is insane and it points to the last of the reality bending tactics of the global financial community. In reality it is a black hole that they will never escape from.

“Paying A Corporation To “Buy” Its Debt? It’s Coming Soon, Jim Reid Warns”

http://www.zerohedge.com/news/2016-02-02/paying-corporation-buy-its-debt-its-coming-soon-jim-reid-warns

“As a result of the rush to global NIRP, which now sees central banks and their sovereigns accounting for over 25% of global GDP, amounting to around $6 trillion in government bonds, trading with negative yields, a question has emerged: when will corporate bonds follow this govvie juggernaut and how soon until investors pay not government but companies to borrow?”

“Is Jim Reid right, and will NIRP soon result in paradoxical outcome of companies paying down debt by issuing debt? The answer is a resounding yes, especially if the ECB cuts its deposit rate lower to -0.4% as the market now largely expects, which in turn forces Japan to cut to -0.2%, forces China to devalue more, and so on, as the next deflationary wave is unleashed in the global race to debase.”

Anonymous on Tue, 2nd Feb 2016 9:53 am 



What does it matter if oil is artificially ‘cheap’ for a time? The externalized costs of using oil don’t go down, no matter what ‘price’ oil trades for in ‘NeYawk’ or London. If anything, those costs increase over time. And debt. Again it hardly matters if oil is ‘cheap’ again, if(most)everyone is swimming in debt.
If the us-zionist empire manipulates the price of oil down to say, $10.00 a barrel, so what? They hurt themselves just as much as Russia or Iran when they do that. And how does ‘cheap’ oil make the trillions in accumulated personal or public debt go away?
A:It does not. A system built on infinite growth and infinite growth of debt, cant be rescued by either more debt, or even cheap(ish) oil. The days when it could be, or at least, appeared it could, are long past.

shortonoil on Tue, 2nd Feb 2016 10:03 am 



“This is insane and it points to the last of the reality bending tactics of the global financial community. In reality it is a black hole that they will never escape from.”

This article is disingenuous as a result of a myopic perspective. Debt is not the cause of the problems now facing the integrated global economy; it is the result. Petroleum’s ability to power the global economy has declined to a level where growth is no longer possible. Exploding debt formation has resulted as the inescapable consequence. Without an alternative energy source to buttress petroleum’s declining ability to power the economy the world has now entered a deflationary spiral from which it can not escape. Ignoring the root cause of the problem will only exacerbate what is now a dire, and increasingly deteriorating situation.

http://www.thehillsgroup.org/

twocats on Tue, 2nd Feb 2016 10:14 am 



Well said short!

I can’t read of listen to Gail anymore (i agree with rock). So I quickly scanned the interview and she does say at one point, to paraphrase (around the 14 min mark),

“that as the price (to produce) oil goes way up, more debt is needed in order to stimulate equivalent growth in the economy, and that some of that debt is cycling back into the production of oil itself.”

I would think that aligns with your thinking?

Davy on Tue, 2nd Feb 2016 10:23 am 



What is going on is more than oil and its foundational place in our human ecosystem. Oil is nothing without an economy. We may have been in a different place now economically with oil in its inevitable depletion cycle if we had not ruined the economy for multiple reasons.

What we have now is a combination of economic decay and oil depletion. Oil is vital and foundational for sure but it is only part of this collapse equation. All the other predicaments have there place also. In the short term it is the economy not oil that is in the driver seat. The global economy is coming unraveled and oil is reacting to that.

Davy on Tue, 2nd Feb 2016 10:36 am 



Like I said the Chinese economy is in the driver seat here and now:

http://www.zerohedge.com/news/2016-02-02/full-summary-chinese-actions-prevent-all-out-economic-collapse

twocats on Tue, 2nd Feb 2016 10:41 am 



To clarify “economic decay”, yes not only is the economy deteriorating, but the entire economic system is in decay, so that is spot on. The one thing to remember is that economic systems are completely artificial and can be retooled, or as Middelkoop calls it, “Reset”, so long as all the major players agree.

https://www.youtube.com/watch?v=WmuiAY2WiIU

How that would play out in middle of peak oil… I’ve only watched the first 15 minutes so I’m not sure if they discuss its impact, I will try to get a chance to finish it.

Davy on Tue, 2nd Feb 2016 10:54 am 



Too late to retool a global economy that is an unraveling Ponzi. We should have retooled back in the eighties. At this point it is surf the energy gradient down. Really it is more like being washed out to sea by the tsunami of doom.

The economy was built as a house of cards through millions of poor decisions. There is no way to correct so many bad descisions. We are in overshoot with population and consumption. If that was not bad enough a climate likely in abrupt change and global ecosystem failing.

We are screwed, blued, and tattooed. There is no getting out of this trap. Even if we were able to manage a reset to the economy oil’s foundational support is decaying so quickly there is precious little time to transition to anything resembling what we have today.

JuanP on Tue, 2nd Feb 2016 11:13 am 



Oil costs by country, in German, http://deutsche-wirtschafts-nachrichten.de/2016/01/24/russland-kann-oelpreis-unter-20-dollar-leichter-verkraften-als-die-usa/

JuanP on Tue, 2nd Feb 2016 11:14 am 



Oil costs by country, in English, http://russia-insider.com/en/russia-can-handle-oil-below-20-dollars-barrel-better-us/ri12580

penury on Tue, 2nd Feb 2016 1:46 pm 



Look at the situation sideways for a while. The economy is not in trouble because of oil prices.Oil prices are in trouble because the economies of the majority of nations are toast or worse. Or to take my point of view, the economies are in trouble because there are too many humans and there is no way to provide the necessities for a large number of unneeded people.Debt has supported the economies since the mid sixties, but now comes payback and no one has the ability to repay the debts. Reset will come but most will call it WAR.

GregT on Tue, 2nd Feb 2016 2:22 pm 



Anonymous,

“If the us-zionist empire manipulates the price of oil down to say, $10.00 a barrel, so what? They hurt themselves just as much as Russia or Iran when they do that. And how does ‘cheap’ oil make the trillions in accumulated personal or public debt go away?”

They aren’t hurting themselves though, they are hurting the American economy, the American citizenry, and American institutions. The empire is above all nations, it holds no allegiance to any flag. The trillions in accumulated debt can not be made to go away by governments, because it is governments themselves that are indebted. At the very root of the ponzi scheme are central banks that print money out of thin air, that must be paid back, plus interest. Exponential growth is necessary under this scheme, or the system will collapse in on itself. Given that infinite exponential growth is an impossibility, the current system will ultimately collapse. It is in it’s very nature to do so.

The only solutions are to either disband the independently controlled central banks, or to allow the central bankers greater control over the world’s finances, resources, institutions, and peoples. The ultimate power and control that has been in the works for well over two centuries.

Thomas Jefferson Warned The Nation To Beware The Power Of The Banks

“I believe that banking institutions are more dangerous to our liberties than standing armies, If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around these banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

“ The issuing power of currency must be taken from the banks and restored to the people, to whom it properly belongs.”

-Thomas Jefferson

http://www.forbes.com/sites/robertlenzner/2011/11/06/thomas-jefferson-warned-the-nation-about-the-power-of-the-banks/#3704fdb02aac

twocats on Tue, 2nd Feb 2016 2:33 pm 



“Even if we were able to manage a reset to the economy oil’s foundational support is decaying so quickly there is precious little time to transition to anything resembling what we have today.”
[Davy]

and I think that’s the key statement. Sure War is a good “solution” to the issues raised (penury, et al). But when the “rebuild” comes after the “reset”, will there be enough surplus energy to rebuild anything significant. This is an ultimate peak oil issue. Most of the other issues are manageable in a post-crises environment. Peak oil is just a society-killer. It’s hard to avoid that reality.

Apneaman on Tue, 2nd Feb 2016 3:06 pm 



There is no such thing as “lost revenue”. A made up econ 101 construct based on “projected revenue” IOW wishful thinking. You either have the money or you don’t. I’ve have a bunch of “lost pussy” based on my projection of every woman I find attractive should want to fuck me. You either get it or you don’t.

penury on Tue, 2nd Feb 2016 3:16 pm 



To further the “lost revenue” fallacy, remember there is not enough money in the world to pay off the current debts. With declining energy available (low quality, or gov mandates) try to envisage a scenario where any nation has the ability to maintain infra structure and maintain the living standards of the population. You might be able to see why the Paul Krugman’s of the world want war.

GregT on Tue, 2nd Feb 2016 3:56 pm 



“To further the “lost revenue” fallacy, remember there is not enough money in the world to pay off the current debts.”

There’s that word again. Debt. Not enough money in the world to pay it back to whom?

GregT on Tue, 2nd Feb 2016 4:13 pm 



“We also discussed her outlook for 2016 and why we think we are at the tipping point in the global economy due to high debt.”

And one more time. Debt.

Where did all of this debt come from? How is it possible to owe something to someone, that they never had to begin with?

twocats on Tue, 2nd Feb 2016 5:10 pm 



GregT, true, but even once your strip away all “made up debt” there are still more claims on energy than available at the current moment, and probably some months and years going forward. Someone is not going to be able to exchange their markers of capital for anything tangible. The markers will become worthless. That’s worse than just “debt can’t be repaid”, its the whole underpinning of storing excess earnings into the form of a marker that can be accumulated and used at a future date. It’ a shit show.

penury on Tue, 2nd Feb 2016 5:32 pm 



GregT, if you really do not know how debt is created, there are some excellant economics sites available so that you can learn. If you merely want to pretend to be ignorant thats o.k. also.

GregT on Tue, 2nd Feb 2016 5:43 pm 



pen,

I completely understand how debt (money) is created, and it certainly is not something that is taught in eCON 101, or most any other modern ‘educational’ institution.

GregT on Tue, 2nd Feb 2016 5:47 pm 



I would also argue that the vast majority of people, including financial services employees, industry leaders, and government representatives all the way to the top, do not have a clue.

ennui2 on Tue, 2nd Feb 2016 9:55 pm 



#1 rule of podcasting.

Don’t start a podcast if you have a speech-impediment.

Bloomer on Wed, 3rd Feb 2016 12:10 am 



Up here in the far north the oil crash has been devastating for oil workers living in Albertastan. However, the loonie has tumbled in lock step with falling crude prices and has offset some of the pain.

For those who don’t making a living mining the sticky bitumen, business is picking up. Thanks to the devalued loonie order books are full. The American tourist are back boosting local economies and Canadians are starting to find some relief at the gas pump.

Oil boom bust cycles are not new. We have lived through them before. However, next time the oil patch starts to rev up, we will really should put a little aside for a rainy day

shortonoil on Wed, 3rd Feb 2016 9:14 am 



“I would think that aligns with your thinking?”

Gail has a reputation for taking other people’s ideas, and claiming them for her own. We don’t take it personally because she does it to everyone. We developed the Etp Model to answer our own questions about the world’s petroleum situation. If what we have uncovered can assist someone else, without costing us very much, so much the better. It seems that not giving credit for original ideas is endemic to the internet. It makes it difficult to determine just how valuable some of that information actually is to the reader. Without adequate sourcing unraveling the continual disinformation campaigns going on becomes an almost endless pursuit. Such behavior, as lack of accreditation, may assist an individual, but it is shooting the internet in the foot. It, unfortunately, reduces it to the status of an Enquirer quality tabloid.

Writing a 2000 word piece that does not contain a number of accreditations on a technical subject like oil is likely to be an agenda driven article. The readers next concern should be “whose agenda”?

Apneaman on Wed, 3rd Feb 2016 11:26 am 



North Dakota’s oil bust blows $1 billion hole in state budget

http://money.cnn.com/2016/02/02/news/economy/oil-bust-north-dakota-budget/

Dredd on Wed, 3rd Feb 2016 11:36 am 



“Why Low Oil Prices Will Not Stimulate The Economy”

I see that they do stimulate the conomy though (Epigovernment: The New Model – 11).

Apneaman on Wed, 3rd Feb 2016 12:35 pm 



Why We Won’t Have a “Lehman Moment” in the 2016 Crash

“Central banks have created abundant credit and liquidity, but no productive places to invest that ocean of nearly free money Creating abundant credit works to spur growth when growth has been restrained by a lack of credit.
But when credit has been abundant for decades, what’s scarce isn’t credit–it’s productive investments that are scarce. Central banks are powerless to create productive uses for the credit they create.

The inevitable consequence of this failed strategic error is defeat. Central banks issued trillions of dollars, yuan, euros and yen in new credit to stave off defeat in the last war (the Global Financial Meltdown of 2008-09), but the problem wasn’t a lack of credit. Now, seven years into the strategy of flooding the global economy with credit, the problem is a scarcity of productive uses for all that money sloshing around the global economy.”

http://www.oftwominds.com/blogfeb16/no-lehman2-16.html

twocats on Wed, 3rd Feb 2016 12:39 pm 



shortonoil,

Yes, Gail has become somewhat of a media darling of the peak oil movement. I, as usual, wish you success – the need to switch to a more localized energy system is simply a matter of life and death for many.

Jerry McManus on Wed, 3rd Feb 2016 1:34 pm 



Gail usually does a fairly good job of accounting for most of the ecological and thermodynamic realities that we face.

Yes, she does tend to get a bit hung up on the debt overload thing, but as I recall her thinking is informed by the base case scenario in the Limits to Growth study.

In that scenario the costs (in real capital not worthless dollars) to extract non-renewable resources becomes so great that it literally sucks the life out of the rest of the global economy which eventually crashes and burns, taking everything else down with it.

I think Gail recognizes just how fragile that makes our current financial system, which is extremely complex, and which literally cannot exist without continuous growth.

Deaf Not Dumb on Sun, 7th Feb 2016 12:48 pm 



@ennui2
Mo Dawoud is Deaf.
You are an Audist.