This is classic ABC - Austrian Business Cycle theory.
The fed pushes the cost of money and credit to well below market levels by creating Trillions of new dollars from nothing.
The low cost of borrowing stupendous sums allows well-connected players (think big banks, big corporations, big government) to take on huge amounts of debt with very little interest cost. This makes the spreadsheets show positive return on investments, when they would show a huge loss if true market rates for the cost of borrowed money were applied.
This leads to massive mal-investment, putting money into things that don't make sense except because of the low cost of money.
In an honest market, a low cost of money happens when savers have saved so much that they are willing to lend money for a better return. Their willingness to lend money sends a signal to entrepreneurs that there is pent-up demand for goods.
But there is no pent-up demand, the American consumer is tapped out, with credit cards maxed out and lines of credit on home mortgages and auto payments. The typical "upper middle class" American is a two thousandaire, has no equity in their home, just monthly mortgage payment(s), two new cars in the driveway on lease or no money down loans, student loans piling up, and $2,000 in savings. They are one layoff, one missed paycheck, one medical or major appliance failure away from bankruptcy.
But the businessmen and entrepenuers who have to look 10 or 20 years into the future to determine what consumers might need then can't help but be fooled by the siren song of low cost money. The time from prospecting for a mine or surveying a potential oil field to actual production is at least 10 years.
So the mal-investments end up in capital-intensive infrastructure projects like mines, wells, pipelines, ships, and factories. In China they've built too many factories. In the US the tax and labor laws make manufacturing a fool's game, so the tsunami of money went into oil shale and fracking. In Canada it went into oil tar sands.
Today a barrel of bitumen from Canadian oil sands, won at great cost in both men, machinery, and energy, sells for a little over $8. The production cost is well over $40. But shutting down a field can permanently damage the formation, so they continue to pump at a loss.
All of those malinvestments were made with newly created credit from nothing, but they consumed real resource. Men, steel, energy, engineering time, construction equipment, housing and food for workers in far-off places, the list goes on and on.
These are all wasted. You can't undrill a well, and undig a mine. The boom towns become ghost towns, the investments in materials and labor gone. Worthless.
So it is small consolation that gas and oil prices may be low for a while, perhaps a long while. Because in truth the entire planet has been made poorer by this farce. We've used fake money to squander real resources, scarce resources that would have been put to genuinely profitable and helpful uses if not for the machinations of the fed and their bankster ilk.
It is not an act of economic warfare, and the economically ignorant orator Lovins has no clue, although that never makes him shut up. It is the free market responding to over a decade of systematic abuse. It is reality setting in. It is showing up in oil because the supply exceeds the demand, and there is no longer enough storage to dissemble about that fact.
Peace,
Silver
Author
Topic: ? About Petroleum Prices (Read 3066 times)