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Question for those who might know: Is analysis that the oil price depression will result in a significant economic recession just FUD, or is it grounded in trut

Question for those who might know: Is analysis that the oil price depression will result in a significant economic recession just FUD, or is it grounded in truth?

zero_intp 11y ago
Even granting the questionable base assumption that the sector fully implodes: Cheap(er) energy across all industries versus one industry segment collapsing is a win for the industrialists.
bjterry 11y ago
With proper monetary policy, there is no reason to expect it would cause a recession in America. The reason people in the business press are concerned about it is because deflation is associated with recessions. But usually recessions are caused by demand-driven deflation (people demanding less goods, which leads to the prices of goods decreasing), while this is a supply-side deflation (suppliers providing more goods, which leads to prices decreasing). As you can imagine, when people demand less, fewer goods are created, which is a recession, but if people are given more for the same price, MORE goods are created, which is not a recession. Scenarios where a fall in the price of oil triggers a recession are possible. For example, with bad monetary policy from the Fed you can always get a recession if they do the wrong thing, and drastic changes in oil prices could make that more likely by leading us into a more volatile environment, where past trends could be broken. More likely is that it could lead to deflation in the Eurozone, and since the European Central Bank isn't very good at monetary policy, it could lead to a further Eurozone recession because of sticky wages. If that recession were bad enough it could cause failure of the economies of one or more European countries and trigger global recession. It's also possible that one or more oil-exporting nations could default on their sovereign debt (Russia, Venezuela), which could cause a panic-driven global recession.
Spooky23 11y ago
FUD. Elevated energy costs are a tax on everything. Next time you're at the mall, consider that for every 100 cars you see, those drivers have an additional $100,000-150,000 to spend vs. peak has pricing.

Question for those who might know: Is analysis that the oil price depression will result in a significant economic recession just FUD, or is it grounded in truth?

zero_intp 11y ago

Even granting the questionable base assumption that the sector fully implodes: Cheap(er) energy across all industries versus one industry segment collapsing is a win for the industrialists.

bjterry 11y ago

With proper monetary policy, there is no reason to expect it would cause a recession in America. The reason people in the business press are concerned about it is because deflation is associated with recessions. But usually recessions are caused by demand-driven deflation (people demanding less goods, which leads to the prices of goods decreasing), while this is a supply-side deflation (suppliers providing more goods, which leads to prices decreasing). As you can imagine, when people demand less, fewer goods are created, which is a recession, but if people are given more for the same price, MORE goods are created, which is not a recession. Scenarios where a fall in the price of oil triggers a recession are possible. For example, with bad monetary policy from the Fed you can always get a recession if they do the wrong thing, and drastic changes in oil prices could make that more likely by leading us into a more volatile environment, where past trends could be broken. More likely is that it could lead to deflation in the Eurozone, and since the European Central Bank isn't very good at monetary policy, it could lead to a further Eurozone recession because of sticky wages. If that recession were bad enough it could cause failure of the economies of one or more European countries and trigger global recession. It's also possible that one or more oil-exporting nations could default on their sovereign debt (Russia, Venezuela), which could cause a panic-driven global recession.

Spooky23 11y ago

FUD. Elevated energy costs are a tax on everything. Next time you're at the mall, consider that for every 100 cars you see, those drivers have an additional $100,000-150,000 to spend vs. peak has pricing.