Oil, the silent economy killer
Jonathan M. Lamb
Innovative Project Finance Expert. Business Consultant. Economist. Renewable Energy Developer- RNG, Digester, Landfill Gas, Carbon Capture & Sequestration (CCS/CCUS), Biochar, Geothermal, Biofuels, SWD. Farmer. American.
Good times are rolling, the economy is chugging along. It all starts the same, as money flows freely we don’t notice the gentle climb in oil, and then the next thing you know it is the straw that breaks the camel’s back!
With the “new” NAFTA oil is free to run again, as manufacturing is back! (that should be read in a sarcastic tone). Oil has now hit a 4 year high, and this is, and should be the real fear on investors’ minds right now as the last five US recessions were preceded by a rise in oil. The bigger market shock would come from a slowdown in global growth from high oil prices. If we are to believe that manufacturing is a good thing for the US economy, guess what? You are depending on people to buy your “stuff.”
Young, developing economies have to spend a larger percentage of their disposable income on oil, and that is where the real problem rests. Just vision $100 oil on the wallets of Chinese consumers. With a focus on lowering the trade deficit that means that China must buy more of our “stuff” and with less disposable income they simply won’t have the money to make those purchases. All our “gains” of tooling up the US to manufacture is lost when the rest of the world doesn’t have the money to buy the goods that we want to produce.
There are not many bigger electric car and energy "switching" bulls than I am. The world of tomorrow looks very different than it does today, and yes, over time oil will not be a driving factor in how individual consumers behave. Economically we still have a stark difference between the "long run " and the "short run." A world with oil over $100 or $150 will drive the switch away from oil, and it just may take an oil driven recession to shift from the "short run" to the "long run."
Boom, bust, boom, bust, it is called the economic cycle for a reason. If there is any hope of a continued and a sustained business expansion cycle, oil needs to flatten out before we hit the bust repeat button. On the flip side an oil recession may just be what we need to drive innovation and shift away from oil once and for all.