{"id":14128,"date":"2015-11-03T21:32:49","date_gmt":"2015-11-04T02:32:49","guid":{"rendered":"http:\/\/olduvai.ca\/?p=14128"},"modified":"2015-11-03T21:32:49","modified_gmt":"2015-11-04T02:32:49","slug":"oops-low-oil-prices-are-related-to-a-debt-bubble","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=14128","title":{"rendered":"Oops! Low oil prices are related to a debt bubble"},"content":{"rendered":"<h3 class=\"entry-title\"><a href=\"http:\/\/ourfiniteworld.com\/2015\/11\/03\/oops-low-oil-prices-are-related-to-a-debt-bubble\/\" rel=\"bookmark\">Oops! Low oil prices are related to a debt\u00a0bubble<\/a><\/h3>\n<div class=\"entry-content\">\n<p><em>Why is the price of oil so low now? In fact, why are all commodity prices so low?<\/em>\u00a0I see the problem as being an affordability issue that has been hidden by a growing debt bubble. As this debt bubble has expanded, it has kept the<em>\u00a0sales prices of commodities<\/em>\u00a0up with the\u00a0<em>cost of extraction<\/em>\u00a0(Figure 1),\u00a0even though wages have not been rising as fast as commodity prices since about the year 2000. Now many countries are cutting back on the rate of debt growth because debt\/GDP ratios are becoming unreasonably high, and because the productivity of additional debt is falling.<\/p>\n<p>If wages are stagnating, and debt is not growing very rapidly, the price of commodities tends to fall back to what is affordable by consumers. This is the problem we are experiencing now (Figure 1).<strong>\u00a0<\/strong><\/p>\n<p><a href=\"https:\/\/gailtheactuary.files.wordpress.com\/2015\/10\/energy-and-commodity-costs-versus-prices.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-40335\" src=\"https:\/\/gailtheactuary.files.wordpress.com\/2015\/10\/energy-and-commodity-costs-versus-prices.png?w=300&amp;h=167\" alt=\"Figure 1. Author's illustration of problem we are now encountering.\" width=\"300\" height=\"167\" \/><\/a><\/p>\n<p>I will explain the situation more fully in the form of a presentation. It can be downloaded in PDF form:\u00a0<a href=\"https:\/\/gailtheactuary.files.wordpress.com\/2015\/10\/oops-debt-bubble-10_30_15.pdf\">Oops! The world economy depends on an energy-related debt bubble<\/a>. Let\u2019s start with the first slide, after the title slide.<span id=\"more-40285\"><\/span><\/p>\n<p><a href=\"https:\/\/gailtheactuary.files.wordpress.com\/2015\/10\/2-we-have-been-told-a-story-about-the-economy.png\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-40291\" src=\"https:\/\/gailtheactuary.files.wordpress.com\/2015\/10\/2-we-have-been-told-a-story-about-the-economy.png?w=640&amp;h=471\" alt=\"Slide 2\" width=\"640\" height=\"471\" \/><\/a><\/p>\n<p>Growth is incredibly important to the economy (Slide 2). If the economy is growing, we keep needing to build more buildings, vehicles, and roads, leading to more jobs. Existing businesses find demand for their products rising. Because of this rising demand, profits of many businesses can be expected to rise over time, thanks to economies of scale.<\/p>\n<p>Something that is not as obvious is that a growing economy enables much greater use of debt than would otherwise be the case. When an economy is growing, as illustrated by the ever-increasing sizes of circles, it is possible to \u201cborrow from the future.\u201d<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<p>&nbsp;<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Oops! Low oil prices are related to a debt\u00a0bubble Why is the price of oil so low now? In fact, why are all commodity prices so low?\u00a0I see the problem as being an affordability issue that has been hidden by a growing debt bubble. As this debt bubble has expanded, it has kept the\u00a0sales prices [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2,3],"tags":[195,1233,391,588,1775,5741],"class_list":["post-14128","post","type-post","status-publish","format-standard","hentry","category-economics","category-energy-2","tag-debt","tag-gail-tverberg","tag-growth","tag-oil","tag-oil-price-collapse","tag-ourfiniteworld"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14128","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=14128"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14128\/revisions"}],"predecessor-version":[{"id":14129,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14128\/revisions\/14129"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=14128"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=14128"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=14128"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}