The Oil Drum

38 comments on A short-term closure of a theme perhaps, and a song?

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TI on May 15, 2006 - 2:58am

Well, drive as you like and let the US trade deficit take care of everything. All Americans will soon find out how they get more mpg - if they have a job to drive to and enough money to make it worth while to drive to a market.

The impact of high energy prices will come through the economy. May be the consumers can afford a $4 gasoline, but think about an industry that has - say - energy costs of 20% of total costs. Doubling of energy prices will make the share of energy costs to 33%. This will easily wipe all profits out. Energy-intensive manufacturing is already dying, industrial investments are down and trade deficit up. This will bite.

I think sincerely that the American driving habits are rational in that social and physical environment. People are not fools. The drive like this because they can afford it and they have good reasons for it. The problems will arrive, but not from there you are looking at. The suburbs are not the real problem, industry is.

Everybody knows how to decrease gasoline costs (take the smaller car, slow down, avoid unecessary driving, car pool etc.), but how do you cope 20% unemployment? Dollar down 50%?

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InJapan on May 15, 2006 - 3:29am

There is no doubt that the import of oil and the rising price of oil has been the leading contributor to the balance of payments problem for the US. There are several good web sites around that document detials.

However, long before you get to dollar down 50%, one would see a worldwide recession so deep as to cut oil consumption. The central banks collude to keep any one currency, especially the dollar, from dropping so much so quickly. What that means of course for Americans are higher interest rates, perhaps greatly so. That will effectively end the housing boom, curb the overconstruction of overly large (and distant) houses, higher rates for car payments, etc.

Politicians probably hate increasing unemployment rates more than anything else, however that is the price to be paid for the lengthy consumption of more than what one produces. I'm not condemning my fellow citizens from afar, not at all, but this is reality. Somewhere at the bottom of it all is likely some law of thermodynamics...

The world economies are intertwined in complex methods, and not just the dollar is weakening, but those of Brazil, Mexico and South Africa also. See this article for more comments:
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=OHHRTBUEOA4CFQFIQMGCFF4AVCBQUIV0?xml=/money/2 006/05/15/cnmarkets15.xml

Here in Japan, I believe that if the dollar gets down to around the 107 Yen point then serious bells will start going off, with the Japanese especially pushing the other G7 members to take action quickly.