[dbarberic]

I was reading a book that discussed the relationship between federal deficits and inflation. Then I got to thinking; with the massive run up in deficit spending starting when Bush II took office, how much of the run up in crude oil price is from actually supply shrinkage due to theories of Peak Oil, verses an increase in price due to inflation effects on the dollar?

I believe the Peak Oil theory, but I wonder if we are trying to explain the multi-year increase in crude prices using only that theory, while the increase may be actually due to other factors in combination with Peak Oil.

[MrBill]

Since 1987 the US federal debt increased from $2.3 trillion to $8.0 trillion or approx. 347% (in non-inflation adjusted dollars). Meanwhile, oil demand has increased about 2% per year or about 36%.

Since 1999, the last major trough in the price of oil, oil has increased from $14-15 to $70 (again not adjusted for inflation) or 482%. During this time the dollar lost approximately 20% of its value against the euro (1.00/1.2050) and about 3.5% against the yen (118/114).

It is clear that the US is running a massive trade deficit combined with an equally massive budget deficit and high debt, but these effects cannot be attributed to a cheap oil policy in the US alone.

In fact, most of the deficit is due to trade in non-oils. The US imports 10 mbpd of oil which at $37.50 per barrel ($15 + $60 / 2) $375 mio per day or $136.875 billion per year. The US trade deficit is $700-750 billion per year at the moment, while the US budget deficit is $400-500 billion. The US needs $320 billion per year just to pay interest on their $8 trillion debt at interest rates of 4% p.a. nevermind principle.

As you can see, the numbers do not add up to a petrol-dollar crisis, but a crisis in fiscal control.

[Epic]

Hi, I ran into these forums several years ago while researching PO for the first time. I've followed them off and on ever since, and finally decide to contribute something to the discussion myself.

something interesting in the washingtonpost today: link

Apparently rising fuel prices are already leading to inflation. What are the implications of this moderate/light inflation with oil at $65 a barrel? what sort of impacts could we see at $75, or $80?

[Armageddon]

the definition of inflation is the influx of money supply in the system ( printing of money ) , and the price increase of goods and products is the result of the influx of money . But if the price of oil goes up, it sure seems like that would effect the prices from food, utilities, trucking, etc.

[jato]

When the US imports oil don't we export Dollars? The higher price of oil would mean a greater export of dollars. Therefore we have to create more US Dollars (and credit) to stay on the every increasing treadmill. The whole process creates more US dollars and more inflation.

Am I correct?

[AirlinePilot]

This is kind of funny really. I find it rather ridiculous and loony that it even gets worded this way. Oil goes from somewhere around 57 or so, then back on up to almost 63 in a few days due to problems we are all well aware of. Then it goes back down less than 2 bucks and guess what? The clouds are parting and the sun is shining! Happy Days are here again! Don't worry! Be Happy! Check this link, amazing link
Nothing to see here, move along please.

{Edited title to enhance visibility of this excellent post. Jack}

[Leanan]

It is amazing.

Note that part of the reason stocks rallied was "low inflation." Inflation was actually surprisingly high, but the "core rate," excluding food and energy, was just what economists predicted. Hurray, hurray, inflation is tamed. I'd be partying...if I didn't have to buy any food or energy.

[PWALPOCO]

All the basic needs of a human are as cheap as ever right !?

I mean "shelter" , thats cheap right now isnt it ? Hmmm maybe not. Last time I looked the house Im in , and the houses around it are "worth" about 3 times more than they were 5 years ago and I couldnt possibly afford to buy anything at todays prices ....

Ok well , how about food , thats cheap right ? Ok , so the farmers are struggling with the bills a bit and the shops are straining on the prices as the delivery , storage and site infrastructure tackle the energy bills .... but hey ..... its still cheap right ...... guys ....... guys ?

Oh oh , I know , water, now THATS cheap. My water isnt even metered. One flat bill and thats it I can use as much as the stuff as I like. Well , until there are some drought regulations brought on or something. I guess you can charge anything you like , it doesnt matter if you dont have the stuff . But theres plenty of drinking water right ? Guys ?

Okay , the old "fire" .... or energy ... now on the one hand its cheap. I think visiting aliens would struggle to gift us a technology or resource as neat as Oil ! How darned versatile it is , and only 60 dollars for a big container full. Even better , a whole gallon of refined stuff .. yours for a couple of dollars ! You know what ... I reckon , if you paid me a fair and reasonable rate for the time involved I couldnt actually URINATE a gallon of , well urine , cheaper than you get a whole gallon of gasoline.

On the other hand , energy is no longer as "cheap" as they were, particularly NG and electricity. The rates NG prices are rising make even the carefree wince as the heavy bills go through the letterbox.

So , providing you dont need shelter , food , water , heating , lighting , then those will have no inflationary impact on your cost of living.

Everythings going great in the world !

[TheTurtle]

Yahoo, we are saved!
Does anybody want to buy my doomer hat?

[gary_malcolm]

$this->bbcode_second_pass_quote('TheTurtle', 'Y')ahoo, we are saved!
Does anybody want to buy my doomer hat?

[dukey]

i've definitely noticed that too
hits some record high
then drops 50 cents or a dollar
then it gets described as a slide !
when really its just short term noise in the long term trend
Infact the fluctunations are almost meaningless
But they like to keep pumping good news

[DantesPeak]

I didn't observe any change for the better in Nigeria, Iran, or Iraq today - which means daily oil price fluctations can sometimes be traced to speculation.

Also - While some say there is an inverse relationship between oil and the market, over a longer time period there is a positive relationship. In fact, most if not all of the market gains over the past year related to energy and associated industries.

[emersonbiggins]

$this->bbcode_second_pass_quote('dukey', '
')But they like to keep pumping good news

[jato]

Link to chart

I thought this was fun! We have arrived at the same comparative gasoline prices of the 1980 (political) energy crisis. My local price is $3.05 for 87 unleaded.

[emersonbiggins]

Record $75 oil at least partially indicates a nearing of PO, but what's with the Dow posting a 6-year high (11,347.45) and commodities trading at record levels? I know squat about economics, but I think Helicopter Bernanke is doing what he does best - flooding the world with phunny money, and those dollars are quickly making their way into the marketplace. So, do we have a consensus on this?

[bruin]

The DOW is simply more irrational exuberance. Also, as folks dump their bonds, they tend to buy stocks.

Commodiities are driven by the cost of oil. Throw in inflation fears and up they go.

Well my take on it all anyways. Eventually oil gets to a price where this all breaks down.

[lutherquick]

I would say peak oil is a cause of inflation...
Or, inflation is a symptom of peak oil...

What's inflation? Too many dollars chasing too few goods?
So peak oil will remove the amount of goods, that equals too many dollars.

The US should remove currency to compensate, but it won't.
As long as peasants in the forest of China and India horde the dollar, then this subsidizes the US and allows the FED to not lower the money supply (too much).

Short term, America can transfer (some of) the effects of peak oil to the stupid people who think the dollar is actually worth something.
Long term, America is fvcked.

[pigleg]

Yeah, seems like everything is going up. I keep trying to decide if its the beginning of the hyperinflation, or if this the the final 'blow off' before the crash to depression. Though, if the Dollar drops when the Dow goes up, then its really stayed the same, so maybe not so bad.

If you've read the one Leeb book he ties the outcome to the rate of oil price increase, which is a conclusion he arrived at by looking at what happened in the past oil spikes.

-If oil rises too quickly, deflation.
-If oil rises steadily, inflation.

He chose an 80% increase, year over year as the threshold for 'too quickly'.

Interesting idea anyway. According to that, so far its the inflation outcome?

[dinopello]

$this->bbcode_second_pass_quote('emersonbiggins', 'R')ecord $75 oil at least partially indicates a nearing of PO, but what's with the Dow posting a 6-year high (11,347.45) and commodities trading at record levels? I know squat about economics, but I think Helicopter Bernanke is doing what he does best - flooding the world with phunny money, and those dollars are quickly making their way into the marketplace. So, do we have a consensus on this?