Posted on 11/15/2014 7:51:26 PM PST by Lorianne
Remember the global financial crisis, triggered six years ago when billions of dollars of dodgy loans - doled out by banks to subprime borrowers and then resold numerous times on international debt markets - began to unravel and default?
Stock markets plunged, banks collapsed and the entire global financial system teetered on the brink of catastrophe. Well a similarly chilling economic scenario could be set off by the current collapse in oil prices.
Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.
“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.
(Excerpt) Read more at telegraph.co.uk ...
Like deflation is a bad thing.
Consumers would save billions of dollars on everything - from food to gas to rent.
Methinks they doth protest too much.
Thank you for posting this - a most important topic. I have been wondering a lot about this. The fall in oil prices could bring down a lot of marginal players. That wouldn’t matter, except that the banking system, running true to form, is linked in with them.
Most producers of oil and gas hedge a good portion of their production against falling prices. Derivative trading. Be interesting to see who goes belly up on the other end of those hedges...
A.K.A., people who should not be in this business, if all they could get is creepy sub-prime loans.
I hop one of them is George Soros.
Problem is that every business is constantly losing money on inventory. They buy it at $100 and sell it for $95. Eventually this creates a supply shortage, with a huge demand.
I paid 2.65 with my kroger 10 cents off.. let it drop,,,
In theory, lower prices should attract more customers and create more gross profit.
Because people buy more when prices are low.
Paid $2.39 today in Okc without a discount card.
Yes it’s great for gas consumers, while it lasts, just like it was great for homeowners when their houses were appreciating quickly in the housing inflation bubble.
But the bigger picture is important here as well. What happens if these producers go down? How will that affect the economy as a whole.
crazy. Cheaper energy is a good thing.
Yes, that’s true but that whole ‘escape velocity’ thing ... is that measurable? How low would prices have to go to produce enough profit to overcome the losses?
I agree. So was increasing housing values if you owned a home ... while it lasted.
I wonder how much os this is the result of the Gulf States overproducing? Good way to stop the fracking boom.
I wont even mention my great way to save money on gasoline
The high price of oil made everything expensive.
I find my food dollars going a lot further now in my grocery store now that it costs substantially less to transport it there.
You don’t understand they will make it up on volume
People who owned a home during the housing bubble and who didn’t finance it with an ARM or an interest only loan that had to be refinanced in 5 years, or who didn’t spend more than they could EVER pay back.... people who didn’t do the stupid stuff were okay before, during, and after the bubble. People who really thought a primary residence was an “investment” and a great way to make short term (3 to 5 years) money were just stupid. An investment is something that you are willing to get out of quickly when the market sector dictates. That’s not particularly true about a primary residence.
Cheaper energy frees up cash for Christmas Shopping.
Then again, a cold winter will absorb cash as people by heating fuel
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