Gas Is Under $2 per Gallon - We're All Saved

Gas is under $2 a gallon! We’re all saved!

No. Sorry, you are not saved. The finite resource you know as crude oil is still finite. Here is a brief, generalized, and grossly overly simplified line of reasoning of why gas costs under 2 bucks per gallon now. Prior to the “Credit Crunch/Crisis” (that terminology is inaccurate…but if I don’t call it what CNN calls it some people might not know what I’m talking about). Anyway…before this whole economic downturn got going full steam, you’ll recall that oil was about $150 bucks per barrel. Gas was over $4 per gallon. That (among other things) was putting a major strain on most Western consumers. $4 gasoline (and it’s trickle down effect) helped cause the “credit crisis” by being an agitating factor when adjustable rate mortgages began to reset and just causing a strain on consumers in general. I felt it. Didn’t you? It wasn’t just the cost either, was it? It was the concern over when the next shoe would drop. Well the next shoe dropped, and it looked like a “credit crisis”. Unfortunately the shoe was not on a human. It was on a centipede and there are about 98 shoes left to drop. Did we take that analogy too far?

Onto something more interesting. What does the “credit crisis” do to oil..and what will happen in the future. What does it mean?!?!?!?!?!?

The price of gasoline has primarily gone down because demand has gone down. AND because future traders FEAR it will go down more and BELIEVE supply will outpace demand. Perhaps it will. Obviously, when people are doing well, economically speaking, they use more gasoline.

1. IF world economies makes a turn for the prosperous THEN demand will start marching right along again and the price of oil will test even higher prices as demand again knocks on the door of supply capacity.

2. IF the economy stays flat or dives further AND oil supply growth can truly keep up with oil demand THEN prices may go down even further for a time.

3. IF the economy stays flat or dives further AND oil supply growth cannot keep up with oil demand THEN…Katy bar the door….the price of oil will go up until another shoe drops. Ad Infinitum.

The 3 if-then statements, above, cover the most likely scenarios we will see in the next 2-5 years.

Tune in tomorrow when we wrap this up, tie it up with a neat little bow, and tell you what to expect for the next few years.

No One Could Have Seen This Coming

This is the second post in a multi-post series on macro-economics, oil, politics, and the near future.

No one could have seen this coming (in reference to current economic downturn).

I have heard some very smart people say this. They are wrong. It was very easy to see the crisis coming, and a lot of people did. When people say things like this it tells me they have not formed their worldview (economic worldview anyway) on understanding the facts and then thinking critically about them.

No in-depth analysis is needed. In the main stream media you will hear a lot of technical talk about how we have to free up credit….so people can borrow…so they can keep consuming…so the economy can keep growing. When the economy is truly “fixed” this type of reasoning will be dead. More credit is not the solution. Living within our means, as individuals, as a society, and as a world is the solution. The economy cannot grow infinitely. We can make it grow for a longer period of time if we do stuff like make it easier for people to borrow money (people who shouldn’t), and borrow and steal from the future ($700,000,000,000 bailout ring a bell?) to prop up the present…in the end though, the higher we prop it up…the harder it will fall. It is not hard to predict. It is easy to see the train coming down the tracks right at us.

Some of you may not yet be drinking the kool-aid I am serving, so let me put it another way. If you make $100,000 a year and spend $50,000 a year on your house and $50,000 a year on other stuff and still need $30,000 a year for your 3 cars….would planning to borrow $30,000 a year, every year, be a good solution? If you cut back and rent an apartment you can afford, eat at home a few nights a week, and pay cash for a Chevy Cavalier that would be a disaster. Why? Because if everyone did it what would happen to the mortgage company? How could they increase profits if everyone decided they didn’t need a McMansion? How would the Lexus dealer survive if he didn’t have a bunch of 30 year olds making $80,000 a year taking out six year loans to buy a car?

If that happened organizations like Freddie Mac and Fannie Mae and lots of other mortgage banks would be in serious trouble AND auto company CEOs would have to beg the government for money…because…NO ONE COULD HAVE SEEN THIS COMING. Give me a break.

By the way…if you didn’t get the sarcasm (I hope it was only one or two of you)….a bunch of mortgage firms did fail and auto company CEOs are on capital hill begging for money as I type this.

Tune in tomorrow for more in this mult-post series about the future.