Exactly one month ago today, Sharp VodkaPundit Readers™ were warned about the downside to falling crude oil prices:
Much of our present recovery, lame as it is, is due to the revolution in fracking. The jobs pay well, the work requires lots of expensive equipment, and those benefits plus the benefits of cheaper energy ripple through the rest of the economy. So it’s great to watch Putin squirm as the rug is pulled out from under his imperial ambitions, but if Hugh-Smith is right, the US economy could be looking at an oil bubble ready to pop — a bubble every bit as big as the real estate bubble of 2007-08. The ripple effects we’re enjoying now could easily become the giant sucking sound of trillions of dollars leaving the economy.
Before we go on, I should note that in a healthy, balanced economy, falling commodity prices are a good thing, making everything cheaper and/or more plentiful. It’s the poor Third World suckers with highly unbalanced economies who suffer. Which is to say, the Third Worldification of the American economy is well underway:
“In its November 14, 2014 Daily Observations (“The Implications of $75 Oil for the US Economy”), the highly respected hedge fund Bridgewater Associates, LP confirmed that lower oil prices will have a negative impact on the economy.
After an initial transitory positive impact on GDP, Bridgewater explains that lower oil investment and production will lead to a drag on real growth of 0.5% of GDP.
The firm noted that over the past few years, oil production and investment have been adding about 0.5% to nominal GDP growth but that if oil levels out at $75 per barrel, this would shift to something like -0.7% over the next year, creating a material hit to income growth of 1-1.5%.”
— Mike Lewitt, The Credit Strategist
I love love love paying less at the pump. And the schadenfreude we should all feel for Vladimir Putin is as tasty as a dozen chilled blue point oysters, fresh from the Chesapeake Bay. But with the middle class unable to earn a return on their savings, with 20something entrepreneurship at a three-decade low, and Washington and crony capitalists skimming the cream off of whatever is left — we find ourselves in the banana republic position of dependency on commodities for our jobs and income growth.
It was nice(ish) while it lasted.
UPDATE: I realize there’s one thing I should have been more clear on. Of course oil prices will rebound, and of course the oil jobs and positive ripple effects will return. But that still leaves the national economy on a boom-and-bust cycle, which used to only hit the energy-dependent states like Texas.
The irony of course is that Texas has rounded out its economy since the last big bust in the early ’80s, while the rest of the country has become addicted to ZIRP-QE-Deficits-Commodities.