Posted on 01/12/2016 9:33:12 AM PST by dangus
The price of oil collapsing should actually help the economy. It's a sign of weakness, but it's one of the ways that a weak economy corrects itself, at least for countries that don't rely on oil exports.
Inflation rates and interest rates are low, but the labor supply is still glutted and labor costs are still depressed. With increased access to raw supplies and cheap costs, this should be a great time to expand business capacity. So why are people worried about a recession? Why is the stock market plunging?
Simply put: the federal reserve is raising rates without cause. The classic reason provided for raising rates is to contain inflation. But inflation is low, demand for raw materials is soft, and jobs are too scarce or wages too low to bring workers back into the labor market. There's no sign of inflation, as made very clear by middle and short-term interest rates.
I don't like the economics of zero-percent interest rates. It means there's no way we can apply more gas. What I don't like is that the fed has committed itself to not one, but four rate increases. That will certainly cause a slow-down.
History -- since the fed has taken the reigns of the economy -- says that every time the federal reserve has inverted interest rates, there has been a recession. And there has never been a recession without an inversion.
It's not quite as clear as saying that if the federal reserve inverts interest rates, there will be a recession and there won't be one if they don't. Japan has had only three rate inversions in its last seven recessions.
But Japan's gas dial is simply calibrated differently than ours. Its shrinking population requires increasing consumption per person to keep it out of recession; merely leveling off consumption per person would mean decreasing total consumption.
Japan has NOT shown that its economic growth can survive an inversion; what it has shown is that recessions are caused simply by bringing long and short term rates anywhere near each other, let alone inverting them.
Relating inversions to recessions isn't like noting that the Redskins win in presidential years or something like that. The causal relationship should be obvious: when short-term rates are higher than long-term rates, banks which borrow in the short-term to make long-term loans like mortgages lose money. Even if they don't create a fiscal crisis, they stop loaning money. And then businesses can't survive small bumps, nor expand when they need to.
Recent recessions have been deliberate. That's not to say that the federal reserve sought the level of destruction that the 2007-2009 recession caused. But recessions keep the American workforce glutted, which keeps wages from rising, which helps corporations maintain profit growth far beyond economic growth.
With taxpayer bailouts, there's no risk in investing anymore... for the big guys. Sure, Gates or Buffet or Soros or Singer or whoever may lose billions, but they always have access to capital, so they can always make it back during the next upturn.
Your biggest investment is your house. Is it back above 2006 levels? Probably not. Your 401-K probably is, even not counting the ten years of additional money you've poured into it. But it's no way near the levels of growth that the fat cats are having.
Don't hate the billionaires for being successful in a free market. It's not a free market. It's a rigged market. When Soros sees an inversion comes, he buys gold, short stocks, or even just converts to cash. What's the small businessman going to do? Sell his grocery for gold, and buy it back cheaper in three years? Soros doesn't care about inversions; you should. And you should know that the federal reserve chooses when recessions happen.
We’re in one now, and have been for 8 years........................
Really? It's not a reflection of supply and demand? The demand for distillate fuels is inelastic (i.e., not responsive to price) so even moderate increases in supplies have a large effect on price. As long as supply grows faster than demand, price will fall. It may well be no indication of weakness.
Personally, I’ve been in a depression.
It’s just the opposite: cheap money makes other things cheap.
Spending on real estate and many long-term projects, such as fracking, is encouraged when rates are low. This increases supplies, which, other things being equal, lowers prices of goods.
Real estate and stock market prices go up, because interest rates are low, so it does not affect all prices equally. Wages can go down if automation eliminates enough jobs (see trucking, 2020-2025). Regulations always raise prices and decrease jobs, like throwing sand in the gearbox of your car.
Normalizing interest rates - to 2-5% - will move real estate and stocks lower. This is good long-term, as it decreases malinvestment, but it causes disruption short-term. And politics is all about the short term.
25 basis points does absolutely nothing to the economy.
So true. And the .25 bp has already been cut in half to 12.5bp by the market.
In this case, it’s a sign of weakness in developing markets (China, etc.).
Demand for distillates is inelastic, but also not a major driver in the prince of oil.
And unfortunately, the Fed don't tell me what they want, they don't buy or sell bonds through me, they don't give me zero interest loans to buy treasuries at 3%, they don't back me up on my bad investments.
The Federal Reserve is the ultimate corrupt insiders game. Its goal is to support Progressive social engineering in Government, and Wall Street.
>> 25 basis points does absolutely nothing to the economy. <<
Agreed. (Well, I’d say very little instead of nothing if I were being pedantic.) You’ll notice what I objected to is scheduling four hikes.
I’m in Florida, so I’m in a Tropical Depression..........................
In market economies artificially low interest rates create bubbles somewhere and unintended consequences elsewhere. Here in the US we have the elderly gaining job share while the youth lose job share. Part of this is caused by ZIRP. So the economy sucks in part because old people get zirped.
I'm in Tennessee, so I'm in a hoedown.
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