[cannedsalmon]

Agreed, the economy will not collapse until the money supply contracts, you know, when they start raising interest rates.

I do not know if this is true but a chinese foreign exchange student from the forbidden city area told me today that gas prices in china are 50 cents a liter. I assume this is correct.



So how do they do this? Something is not right in the gas market.

[manu]

$this->bbcode_second_pass_quote('eastbay', 'I')t's going to take a lot more than $200/bbl oil to stop The Machine. I was just in Malaysia and even with the limited and lingering (although recently modified ) subsidy, the freeways around KL and the primary N/S freeway are jammed with cars and trucks totally ignoring the posted speed limit speeding along as if the stuff was free.


This from a nation with a per capita GDP almost exactly the same as Mexico's. Interestingly, they're in a similar position too. Both about to become net energy importers after many decades sitting pretty in 'export land'.


So, IMO, if a nation like Malaysia can keep trucking along (mostly) just fine with $140/bbl oil, North America and Europe and the rest of the developed world can also (mostly) make ends meet with 2, 3, or 4 times the per capita income on $200/bbl oil.


So, in conclusion, Deutsche Bank is blowing political smoke for some reason. Maybe they're pushing to get the EU nations to reduce their petrol taxes. Maybe something else. I'm not sure what is the General Breaking Point, but $200/bbl oil isn't anywhere near Planet Doomsville folks. So relax.

[ROCKMAN]

For those a tad younger than me let’s jump into the Way Back Machine and view a set of circumstances fairly similar to today:

I can make a model of oil dropping to $40/bbl in 5 years that’s both credible and defensible. You need only remember that every model is based upon assumptions. And the validity of those assumptions determines the credibility of the model.

Back in the late 70’s when I was just a pup of a geologist companies were using a price forecast of $70 to $90 per bbl by the mid 80’s. This would equate to a price of $250+/bbl today. Such forecasts were needed to run economic models to evaluate drilling deals.

It didn’t quit shake out that way. The oil price run up caused a worldwide recession that knocked consumption down (vague memory of a 6% to 8% drop) which, in turn, led to $10/bbl oil in 1986. I personally knew of dozens of small companies that went belly up as a direct result of this bad forecast. The number was thrown around that the oil industry lost over 500,000 jobs but who knows. But I know I was getting up at 2 in the morning to deliver produce to restaurants for a while. (but doing much better now….thank you)

OK…wipe your tears and pay attention. My forecast is just as credible as anyone else’s (and more defensible then many). I don’t know if the world will slip into a recession as it did in the mid 80’s. But if it does then my model is a valid extrapolation of what happened a little more then 20 years ago.

This is just a model…not a prediction. What will happen will depend on the world economy. And no one (and I mean NO ONE) in the world predicted a collapse of the world economy anywhere close to what occurred in the early 80’s. And this included all the smartest economists in the world at that time, just like all the predictions coming out of all the smartest economists in the world now.

[vision-master]

$this->bbcode_second_pass_quote('', 'T')his is just a model…not a prediction. What will happen will depend on the world economy. And no one (and I mean NO ONE) in the world predicted a collapse of the world economy anywhere close to what occurred in the early 80’s.

[ROCKMAN]

vision-master,

Yes...in many ways they seem worse. The price spike in the late 70's was not caused by a lack of producible oil. And the price collapse was not the result of voluntary conservation or a swith to renewables. And the world economy seemed to fucntion on a simpler level.

The WW economic collapse took several years to reach a true impact level. I suspect identifying the tipping point today would be similar to predicting US recessions: easily done when looking back 6 months to a year. Given the new China Syndrom (expanding economy regardless of oil prices) I think anticipating net demand decline is all the more difficult. But if prices eventually knock demand down 5% that's 4.3 mmbo/day at current consumption levels. That makes the call for Saudi to up production a few hundred thoudand bopd look puny.

As usual in these discusions it falls back on "time will tell"

[Revi]

This is going to be a catastrophe for those who are still doing things the way they did in the late 90's and those at the lower end of the economic ladder.

People who get smart and switch their consumption will be okay for a while.

$300 a barrel could bankrupt even them.

[ROCKMAN]

Speaking of which this story just popped up. I wonder what the BIS predictions were back in the early 80's? I have no doubt that some of the secretaries at BIS understand the "Big Picture" better than I do. But it goes back to the same point: eveyone can make a prediction. And of all the possible outcomes one prediction will be exactly right. But it just like a lottery winner: he didn't know what the winner number would be. But whenever every possible outcome is predicted someone will have it right...even if they didn't know what they were talking about.

BASEL, Switzerland (June 30) - The global economy could face a deeper downturn than many currently expect amid rising inflation and the turmoil on financial markets, the Bank for International Settlements said at its annual meeting Monday.

"In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation," the BIS said in its annual report.

"While difficult to predict, their interaction does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect."

The Basel-based bank added that the current "consensus view is still that the global economy will slow only modestly further in 2008" and that growth continued to be strong in the euro zone, Japan, and major emerging market economies.

Often called the central bank of central banks, the BIS said during its last fiscal year central banks worldwide reacted to the financial and monetary policy situation differently, and that given their countries' different economic situations, a "one size fits all" monetary policy can't necessarily be predicted or suggested.

The bank said that with inflation rising, a global bias toward higher interest rates was probably appropriate. Higher interest rates can cool inflation, but run the risk of lower growth.

The bank warned against a cookie-cutter approach to interest rates from country to country, and warned than an excessive tightening exacerbated by the credit contraction caused by the crisis over mortgage-backed securities in the United States could worsen any downturn.

"Unfolding developments at the core of the global financial system have, however also created great uncertainty about the future economic prospects," the bank said. "Banks in several advanced industrial economies have been tightening lending standards, and thus a generalized squeeze in the availability of credit remains a distinct possibility."

The European Central Bank has indicated it could raise its key interest rate from the current 4 percent "by a small amount" as soon as this week, in an effort to combat rising inflation in the 15-nation euro zone, which is well above its preferred level of at or near 2 percent.

The BIS said it would have been best to avoid the large buildup of loose credit in the first place and urged new regulatory frameworks to prevent a recurrence.

The BIS is a center for economic and monetary research, and coordinates regulations in the fields of financial services to promote international financial stability. All of BIS' capital is held by central banks BIS' customers include international central banks, as well as international organizations..

The BIS board of directors has 20 members and is currently chaired by Jean-Pierre Roth of the Swiss National Bank. Six non official directors are the central bank governors of Belgium, France, Germany, Italy and the United Kingdom as well as the Chairman of the Board of Governors of the U.S. Federal Reserve System.

[shortonoil]

The US doesn’t have to wait for $200 oil to go bankrupt. It is already there. $140 oil is costing the US in excess of $800 billion/yr. This money has to be borrowed, and there are, at present, no private foreign investors investing money into the US. At present, SFW funds and central banks are keeping the US afloat.

The drain on foreign economies from foreign central banks pouring money into the US is producing massive problems in their own economies. They will not be able to sustain this huge outpouring of cash from their economies into the US economy much longer.

Once they stop, which could be any day in the very near future, the monetary/financial system will come apart. Without a working currency system, the US economy will come to a halt!

[manu]

$this->bbcode_second_pass_quote('shortonoil', 'T')he US doesn’t have to wait for $200 oil to go bankrupt. It is already there. $140 oil is costing the US in excess of $800 billion/yr. This money has to be borrowed, and there are, at present, no private foreign investors investing money into the US. At present, SFW funds and central banks are keeping the US afloat.

The drain on foreign economies from foreign central banks pouring money into the US is producing massive problems in their own economies. They will not be able to sustain this huge outpouring of cash from their economies into the US economy much longer.

Once they stop, which could be any day in the very near future, the monetary/financial system will come apart. Without a working currency system, the US economy will come to a halt!

[KevO]

$this->bbcode_second_pass_quote('DefiledEngine', 'I') thought it was already collapsing?

[DantesPeak]

$this->bbcode_second_pass_quote('KevO', '')$this->bbcode_second_pass_quote('DefiledEngine', 'I') thought it was already collapsing?

[MD]

$this->bbcode_second_pass_quote('ROCKMAN', 'F')or those a tad younger than me let’s jump into the Way Back Machine and view a set of circumstances fairly similar to today:.

[ROCKMAN]

Good catch MD.

But I wasn't offering probabilities...just possibilities.

Just like India's potential fall from it's soaring economy might have been offered as a "possibility" 6 months ago:

Just off the wire:

Just six months ago, India was looking good. Annual growth was 9%, corporate profits were surging 20%, the stock market had risen 50% in 2007, consumer demand was huge, local companies were making ambitious international acquisitions, and foreign investment was growing. Nothing, it seemed, could stop the forward march of this Asian nation.

But stop it has. In the past month, India has joined the list of the wounded. The country is reeling from 11.4% inflation, large government deficits, and rising interest rates. Foreign investment is fleeing, the rupee is falling, and the stock market is down over 40% from the year's highs. Most economic forecasts expect growth to slow to 7%—a big drop for a country that needs to accelerate growth, not reduce it. "India has gone from hero to zero in six months," says Andrew Holland, head of proprietary trading at Merrill Lynch India (MER) in Mumbai. Many in India worry that the country's hard-earned investment-grade rating will soon be lost and that the gilded growth story has come to an end.

[lexicon]

World Economy Collapse? As in New Great Depression?

All the more reason to bomb Iran pronto!

As Andrew Mellon said, "In a depression, assets return to their rightful owners".

[Eli]

So we are 56 bucks from a global melt down.

Peak oil kicks ass!

[threadbear]

$this->bbcode_second_pass_quote('ROCKMAN', 'G')ood catch MD.

But I wasn't offering probabilities...just possibilities.

Just like India's potential fall from it's soaring economy might have been offered as a "possibility" 6 months ago:

Just off the wire:

Just six months ago, India was looking good. Annual growth was 9%, corporate profits were surging 20%, the stock market had risen 50% in 2007, consumer demand was huge, local companies were making ambitious international acquisitions, and foreign investment was growing. Nothing, it seemed, could stop the forward march of this Asian nation.

But stop it has. In the past month, India has joined the list of the wounded. The country is reeling from 11.4% inflation, large government deficits, and rising interest rates. Foreign investment is fleeing, the rupee is falling, and the stock market is down over 40% from the year's highs. Most economic forecasts expect growth to slow to 7%—a big drop for a country that needs to accelerate growth, not reduce it. "India has gone from hero to zero in six months," says Andrew Holland, head of proprietary trading at Merrill Lynch India (MER) in Mumbai. Many in India worry that the country's hard-earned investment-grade rating will soon be lost and that the gilded growth story has come to an end.

[TonyPrep]

$this->bbcode_second_pass_quote('memmel', 'I')ts when we hit the 300-500 range that real problems start cropping up.

[ROCKMAN]

threadbear,

I'm not sure anyone can fore tell where China will go in the short or long term. For a few years many have been saying their huge GDP growth was going to explode. But it hasn't happened yet.

I'm predjudiced by my limited experiences I China. I adopted my daughter in China in 2000. I spent a lot of time wandering around the streets in a medium sized industrial city. I don't think I can make anyone understand the tenacity of those folks. They have almost nothing to work with by our standards yet can turn crap into gold by sheer effort alone. Combine that with a gov't that's in absolute control. From my perspective it's not really a communistic structure. I think it would be better described as a mafia model. But I don't mean in a bad way. They have a biz plan and no one will defy it. No one. We're likely to hear the political debate over PO go on for years here. There is no debate in China.

Lots of folks talk about their increasing consumption. I don't see that as the biggest threat to us. For years China has been entering production contracts and buying/financing production around the world. Angola has just become China's main supplier of oil replacing Saudi. But much of the oil coming out of Angola and elsewhere isn't just being bought but is actually owned by the Chinese at the wellhead. They have fixed contracts inplace with Veneauela as well as ownershio of a number of their fields. US companies are not going to be able to buy much of this crude even if they were willing to pay twice the market value. It belongs to China. I'm not aware of any such arrangement between the US gov't and any producer in the world. They may have over extended themselves...maybe not. Time will tell.

[no_name]

The knife keeps twisting!

BBC

[manu]

The head lemming better get busy with some good news. Another war, more checks for people, rebates, satistics that say all is good, a small dip in the market, jobs are up, wag the dog, wag it some more, run for cover, hide while you can, party on, look the other way, more bombs, all is well, shit happens and don't blame me or I will nuke the cities myself. He wouldn't do that would he? Maybe for the good of the elite. Safe in his granite cave in Colo. he watches WW3 on his flat screened t.v. with glee. Population control and mass cremation all in one go. More oil and food to go around now.