Posted by Dinah on June 30, 2008, at 9:36:45 [reposted on July 6, 2008, at 13:09:21 | original URL]
In reply to Re: Anyone Else Starting To Fear The Economy? » Dinah, posted by Sigismund on June 29, 2008, at 23:28:48
My recollection of the seventies crisis was that oil definitely played an important part. But I also remember a major problem was interest rates. Interest rates flew up to the high teens. Savings and loans and banks were holding low interest rate mortgages but forced to pay high interest rates in order to get depositors to deposit their money. As a result their losses started mounting, and to balance this, they started lending money to ventures that were willing to pay high interest rates because of their rather speculative nature. Eventually the whole thing went bust, and the government was forced to bail them out. I'm hoping that rules were put in place to prevent that from happening again. And I'm hoping the federal reserve is able to keep a better control on things. I felt so much more comfortable when Greenspan was there.
I was worried about the economy even before the oil problem. People have been encouraged to overinvest in real estate, to buy bigger homes than they can comfortably afford. The guidelines for how much of your income should be spent on mortgage payments seem different now than they used to be. The idea was that you could always flip houses. That real estate was always a sound investment. Which it may be long term, but isn't necessarily short term. This is led to a round of foreclosures, mortgage holders doing whatever they could to keep foreclosures from happening, and a general decline in the real estate market and new home construction. Which isn't all that unlike what happened in the seventies.
Still, the oil problem is so much worse than that. I know people who will have a really hard time keeping their jobs with oil prices being what they are. And if people start losing their jobs because of it, things will spiral downwards. Even now, as there is less disposable income and people have less confidence, there's going to be a ripple effect in nonessential sales. Clothing for one, as TexasChic pointed out. And our city relies heavily on tourism. There are going to be fewer people who can justify taking a vacation, and less money to spend when they get to their destination. As people are laid off in the hospitality industry, they'll have no money to spend on things locally, and the entire local economy will suffer. And so on.
I just don't totally understand what's going on with the oil prices. I understand part of it is totally out of our control. Developing countries, particularly China, are developing and their demand for oil is skyrocketing. Since oil production doesn't skyrocket along with it, our days of cheap oil may be over forever. Yet I've also read that oil companies are passing along increases in oil prices without passing along decreases. And that speculation in oil futures is artificially driving prices higher. Surely the government could step in on those practices. Yet neither party seems to be making any effort to do so, so probably I'm understanding it wrong. If I was understanding it properly, it would make a compelling election year topic. Since it's not, I must assume I'm incorrect. It seems unlikely that both parties are so interested in the allowing of offshore drilling that they'd be willing to give up such an important political advantage.
I've lived through a few economic crises, and I ultimately have faith that this too shall pass. But I am also prepared for some rough times. :(
(I was recently considering ordering something made of acrylic, and discovered that the company had raised its prices 15% because of increased oil costs, acrylic being a petroleum byproduct. So the implications to costs rising go far further than the gas pump.)
I think long term the answer is definitely to develop alternative fuel sources. But short term that's infeasible. People's cars are made to run on gasoline. Converting even to ethynol would would be very costly. Not to mention the entire production and distribution system. I also have personal reservations about switching to a fuel source that if widely adopted would be dependent on crops. Mother nature is not known for her cooperation in producing a steady supply of crops. It's definitely something that needs to be considered. Eventually, Americans might even be brought to embrace public transport.
As far as stagflation goes, I don't recall overly much about that term and the causes. But I'd think runaway oil prices would definitely contribute to rising prices and economic stagnation. I can't really remember what other factors came into play.
Or I could be completely wrong about everything. What do I know? The powers that be can't seem to figure anything out. I'd probably understand better if Daddy was still around. It was rather a hobby of his. I really am no expert.
poster:Dinah
thread:838387
URL: http://www.dr-bob.org/babble/poli/20080312/msgs/838405.html