The Oil Drum

The problem in my opinion is not so much that oil is getting expensive. In fact if the increase were slow and steady I think we would adjust well enough and in time learn to live without. But it is the financial response that is likely to be the most dramatic. Will lenders continue to lend in a collapsing ecomony? I have heard many excuses for the dotcom debacle, but I really think it was banks upon realizing that the North Sea was in permanent decline that pulled capital from the market that killed the dotcom. If I recall correctly it was a Bank of America guy that first called the downturn and was met with ridicule, for a few days anyway. If oil is determined to be beyond peak, then I think we will see money dry up and rather quickly as those that have, move to shore up their wealth and find ways to protect it. Gold is relatively flat, so I don't think the time is upon us yet. Housing today is sort of like the dotcoms in that it relies on an increasing supply of money. I expect that the housing bust will excelerate over the next year or so, if we are well and truly beyond peak, and Kunstler will be able to finally say "I told you so". It was interesting to watch the exchange rate with the Euro drop again last week just before wall street made its heroic jump. I expect they are related since the DOW is more a reflection of the M3 money supply, than the relative health of the economy. But of course when the DOW is doing well, we tend not to dwell on other matters that are less propitious.