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Liberty News ForumLNF Forums HereEconomics, Financial News › Are lower oil prices bad for the petrodollar or global economy?
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Enoch8
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Are lower oil prices bad for the petrodollar or global economy?
Jan 28th, 2015 at 1:56pm
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Over the past few weeks, I have heard many people whining about the lower oil prices, being a potential problem for American oil companies, that the lower prices makes it unprofitable to bring shale oil to the market.
Now we are hearing that, this will lead to potential job loss and even a liquidation of petrodollars from global markets.

This seems counter-intuitive to logic... If oil supply is increased, but demand is constant or even increasing, but prices are low aginst the dollar, then doen't it make sense, that the US Dollar value is increased against oil and especially against forex currencies?
Especially considering, that devaluation of local currencies, is a trade advantage, to exporter nations, I would think that demand for USD would be increased, while petrodollar values are high against competing oil markets.

This could be a lengthy and deep topic, to be sure, so I am only going to scratch the surface, for now, by asking if you saw this article, written by Mike Whitney and posted at Global Research.
It is over a week old now, but is well worth reading.

I think Mike Whitney knocks this one out of the park.

http://www.globalresearch.ca/are-plunging-petrodollar-revenues-behind-the-feds-p...

I suspect, that the futures traders are the ones most likely to be complaining about lower oil prices.

In the free markets, competition is the natural balance and healer of ailing economies. ~My humble opinion

If I am wrong..... I can accept that.... but IMO, i would say to American producers, "If you cannot compete, then you do not need to be in business."

That said, I still believe, American workers and ingenuity will prevail. We do not need to handicap production.
Business and real economics is like professional golf. There is no handicap. It is a scratch game, in the real world.
  

Rule62: Don't take yourself too seriously.
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Possumpoint
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Re: Are lower oil prices bad for the petrodollar or global economy?
Reply #1 - Feb 11th, 2016 at 7:58pm
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I'm not educated in finances above running a checking account. It is however my belief that debt at all levels is the root problem facing the world economies. Excessive debt has been taken on by governments, corporations and private citizens. The United States economy changed from cash based to debt based in the years since WWII. To the point that credit cards are used to purchase fast food and recent college grads are carrying so much debt that it impacts their life styles and purchases. They are being held back from entering the middle class by the ball and chain of debt.

Falling oil prices are the result of excess oil dumped into the market to destroy the fracking production ongoing in and by the United States. It is a deliberate attempt to bankrupt those producers who require higher prices to break even. Those receding prices are like an outgoing tide that is reveling the bones of companies and banks in the oil industry who are in too deep.

The price drop has gone far enough that countries and governments are now scrambling to patch up shaky finances to keep their individual houses of cards from falling. Dipping into reserves and liquidating assets to cover shortfalls in income. With Iran now entering the market and adding more oil to the excess things should get very interesting.

So, again, I say it is excess debt, not too much oil that is causing the problems.
  

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Re: Are lower oil prices bad for the petrodollar or global economy?
Reply #2 - Feb 12th, 2016 at 3:48pm
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Possumpoint wrote on Feb 11th, 2016 at 7:58pm:
I'm not educated in finances above running a checking account. It is however my belief that debt at all levels is the root problem facing the world economies. Excessive debt has been taken on by governments, corporations and private citizens. The United States economy changed from cash based to debt based in the years since WWII. To the point that credit cards are used to purchase fast food and recent college grads are carrying so much debt that it impacts their life styles and purchases. They are being held back from entering the middle class by the ball and chain of debt.

Falling oil prices are the result of excess oil dumped into the market to destroy the fracking production ongoing in and by the United States. It is a deliberate attempt to bankrupt those producers who require higher prices to break even. Those receding prices are like an outgoing tide that is reveling the bones of companies and banks in the oil industry who are in too deep.

The price drop has gone far enough that countries and governments are now scrambling to patch up shaky finances to keep their individual houses of cards from falling. Dipping into reserves and liquidating assets to cover shortfalls in income. With Iran now entering the market and adding more oil to the excess things should get very interesting.

So, again, I say it is excess debt, not too much oil that is causing the problems.

Well said.

It seems as if we are set to see a replay of 08 in terms of asset backed securities getting written down and leading to a deflation in the derivatives market.

In 08 it was home loans that were bundled and securitized that led to pain when home prices fell.

Today is it loans to energy company that have been collateralized into energy bonds, which banks are starting to see default.

So yeah I think those low oil prices could very well be the canary in the coal mine, so to speak.
  

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." J M Keynes

"In the first place, the dichotomy between "theoretical" and "practical" is a false one. In economics, all arguments are theoretical. And, since economics discusses the real world, these theoretical arguments are by their nature "practical" ones as well." M Rothbard
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Re: Are lower oil prices bad for the petrodollar or global economy?
Reply #3 - Feb 28th, 2016 at 9:21pm
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Are you aware that in the first 6 months of 2015 over 110 Billion dollars has been lent in subprime car loans? They have been given to borrowers below a credit rating of 660, the bottom rating of good. Of that 110 Billion, 70 Billion has been lent to those whose rating is below 620, the beginning of bad. These loans are also being bundled into CDO's and tranches are being cut from them?

The default rate on the loans is now in excess of 8% and federal regulators are becoming concerned.
  

Learn all you can, it's a one way trip.
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