Fascinating article by Gail the Actuary at The Oil Drum concerning where gasoline prices are now, and where they are going in the future. The comments for this article are especially good.
One point that jumped out at me is that a lot of economic pundits are writing articles and theorizing timelines based on when they feel the markets will truly ‘correct’ and be able to move forward again. This article posits the idea that the markets are so debt-ridden that they may never truly be able to correct.
The US government has thrown a lot of cash at the banks, the GSE’s, insurers, and practically everyone else except homeowners who played by the rules and only bought what they truly could afford. The incoming Obama administration is promising to throw even more cash at things to try and get things moving again. This ‘cash’ is really just more debt we are throwing on top of a massive mountain of debt we already are burdened with. While this additional debt may provide a short-term jump-start to the economy, in the long run it’s just adding to the bill current and future generations will have to try to pay off… or not.
The current unwinding of debt that is starting now will probably not end for a while… when will we reach the point where the low energy prices will start killing off energy companies, and what will that mean for the country? How many homes in the Northeast will be uninhabitable if there are no companies to deliver heating oil? If natural gas prices crash to the point wellheads and pipelines shut down, what would that mean to millions of homes across Canada and the northern USA? These are interesting questions that few people have thought about while we’re enjoying much lower gas prices.