Is the next recession on the way? Here’s everything you need to know about the market’s oil collapse
Given how the first few weeks of January have played out, I feel sorry for anyone who chose as a New Year’s resolution to check their retirement accounts more assiduously. Stocks hit a 15-month low last Friday. Analysts cite a number of factors in the slowdown – China’s economic woes, the strong dollar – but the biggest culprit appears to be the dip in the price of oil, from a high of $100 a barrel in mid-2014 tounder $29 a barrel, which is over three times cheaper than the price of the barrel itself. By the way, the Iranian nuclear deal, which will allow the major oil producer to return to global markets, makes future price prospects worse, not better.
At this moment, everyone should repeat to themselves the mantra that the stock market is not the economy, stop checking their portfolios, and get on with their lives. However, the oil price collapse could spill into the real economy, and not in the ways everybody expected when prices began to fall over a year ago.
Good
At that time, as Paul Krugman explained over the weekend, the conventional wisdom held that oil price drops would benefit the U.S. economy on net. The theory goes that reductions in the price of gasoline help consumers, who have a higher propensity to spend money than oil companies and their executives. Consumers would take the windfall savings and cycle it through the economy, increasing growth. Sure, oil companies would feel the pain, but the benefits would spread to many more people. President Obama referred to this in the State of the Union address when he quipped, “Gas under two bucks a gallon ain’t bad, either.”
But this overlooked a couple points. Number one: Over the past several years, fossil fuel production has grown as a share of the U.S. economy. Serious disruptions in price – like the 70 percent drop we’re seeing now – is battering shale producers in North Dakota and Oklahoma as much as traditional oilmen in Texas and Louisiana and Alaska. That includes the fracking boom, which has spread throu
Read more at the link: http://www.salon.com/2016/01/19/is_the_next_recession_on_the_way_heres_everything_you_need_to_know_about_the_markets_oil_collapse/
I've been saying we headed for a downturn since the end 2014. We have a bubble economy.