I think this is what sober analysts are considering with the utmost seriousness:
Guess What Happened The Last Time The Price Of Oil Crashed Like This?
This looks like a lot of fear mongering about nothing. Some high yield bonds issued by some oil patch companies will default. Junk bonds are risky, that’s why they have a high yield in the first place.
I fail to see how that is going to bring down the world economy. The majority of the world doesn’t own high risk, high yield junk bonds but they do benefit from lower energy costs.
This is hardly comparable to the housing bubble when trillions of dollars of high risk paper was misleadingly rated AAA. Investors who bought the high yield energy sector junk bonds knew that they were taking a risk, this wasn’t the case during the housing bubble.
I think this is what sober analysts are considering with the utmost seriousness:
Guess What Happened The Last Time The Price Of Oil Crashed Like This?
Right.
Low oil, and other commodities, prices are just a symptom od the lack of growth that is destroying the world’s economy.
The world’s wealth has gone to governments to ‘invest’ and the ‘returns’ are lousy.
I agree with you and would add that lower oil prices have a huge stimulative effect on the economy.
It is essentially as if we’ve got a QE-4 (quantitative easement) without the Fed lifting a finger.
Having energy deflation is good for energy-dependent economies.
Furthermore, there will be less need to for the FED to raise interest rates in the near future.
The “majority” of the world does not have to own high yield bonds for the world to turn upside down. It doesn’t take much to get the ball rolling.
The drop in oil will cause the Russians to pull some junk in Europe with gas.
Its the folks who took their margins to the limits to invest in oil, thats who is going to get hurt. They will dump their assets to cover their debt. That will cause more deflation. And it starts a horrible spin out of control.
Too many people took out too much risk. For the average Joe on the street....they will not know what hit them when their jobs disappear and their 401ks are cut by 80%.
And yes, it could get that bad, that fast.
I am not saying it will, but consider if we have another Lehman situation...what will the Fed do? All of their ammo has been shot without great results. Are they going to drop their rates under zero? Or are they going to print more money?