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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (371804)	2/24/2008 3:09:51 PM
From: tejek	Read Replies (1) \| Respond to of 1578510

But you have to put it in the proper context. At $100 oil is back to where it was in 1980. However, oil in 2008 makes up a much smaller portion of the GDP than it did in 1980 so its impact on today's economy is much smaller as Krugman aptly points out. Yeah but we are importing twice as much so that money is going elsewhere, and the $100 oil isn't static it's dynamic. We are at peak oil. We may have seasonal downs but the trend is hugely up... by 100's of percent over the last 4-5 years. If we get 100's of percent (or even just 100%) on this base price of $100 over the next 4-5 years our economy is crippled. Period, end of argument. Before oil goes up another 100%, its likely the world will be in recession. While we may be at or close to peak oil, the price of oil can be very elastic. In the last month price of oil has gone from $86 to $100. In the last six months, its gone from $70 to $100. And those prices can reverse on a dime. Oil is subject to a great deal of speculation and so there is a great deal of fluidity in those prices. Secondly, the stagflation argument neglects the incredibly deflationary aspect to the decrease in housing prices. And housing and its pricing are far more important to the American economy than oil. So as I see it, the problem is not inflation or even stagflation but deflation. Housing is just one aspect of cost and another aspect of wealth. If you can't buy a house because you have no wealth, just debt, then it the lowered cost does nothing for the economy. If inflation starts eating away at discretionary income, then a paralyzed housing market is a negative not a positive. I disagree. Housing is a much bigger component of GDP than oil. Not only is it a significant wealth creator but an important psychological component in how an American views his/her financial position. With housing prices dropping and with no bottom apparently in sight, Americans feel much poorer. They become less willing to spend money on anything beyond necessities. Making the problem worse is the lenders who become much more reluctant to lend money for mortgage loans because they can't be sure the housing price of today will still be the housing price of tomorrow. Less lending means less people can buy houses, leaving more houses on the market and forcing prices down even further. Eventually, it becomes a virtuous circle feeding on itself. The ultimate result is much less money in circulation providing the very essense to what it means to be in a deflationary economy. Ted, look at the inflation numbers, they don't lie (but are probably understated). They are going up. People's wealth is going down. Their debt is going up. People are tapping their 401K to maintain their lifestyle. Oil prices have been going up for years with little evidence of inflation. Why suddenly the spike in inflation? Ethanol! We are using an important food crop and livestock feed and converting it to ethanol. Couple that will the global failure of wheat crops in several parts of the world, price of certain foods is jumping like mad. Recently, Mexicans had a huge protest in Mexico City over the significant jump in the price of corn. The increase in crude prices coupled with this jump in food prices is what is making inflation spike up. While its a problem excerbated by the worst leadership in Washington in the past 25 years, I don't think its the one that should grab the majority of our attention. Instead we should be worried about the deflationary spiral that is now working its way through the economy. Grab your butt and hold on... we're in for a ride. On that, I can agree. That's why I am mostly in cash.