“If society consumed no energy, civilization would be worthless. It is only by consuming energy that civilization is able to maintain the activities that give it economic value. This means that if we ever start to run out of energy, then the value of civilization is going to fall and even collapse absent discovery of new energy sources.”
~ Dr. Tim Garrett, University of Utah
The New Oil Cycle is Suffocating Economic Growth
There was a time when central bankers used to fight high oil prices with interest-rate hikes. But we are now in a different era with that equation, and central bankers are more likely to lament, as Ben Bernanke quipped in his spring 2011 press conference, that “the FED can’t print oil.” Yes, precisely. At the zero bound of interest rates and with debt saturation coursing through the private and public sector, the developed world faces not an inflationary restraint from oil prices, but rather an additional deflationary barrier. Welcome to the new oil cycle.
In the old oil cycle, new supply of petroleum was brought online to capture rising prices. In the new oil cycle, declines from existing fields neutralize this new supply, for a net global supply gain of zero. In the old oil cycle, recessions benefited large consumer countries like the United States as oil prices fell, giving a boost to the economy. In the new oil cycle, the price of oil falls only for a short time before resuming a higher swing. In the old oil cycle, the developed world set the oil price through swings in its demand. In the new oil cycle, the developing world, with its much lower sensitivity to high prices now sets the floor on oil. Most of all, the new oil cycle caps growth in the developed world. The new oil cycle kills the economies of the OECD nations.
This week, JD Power and Associates released its 2012 sales outlook for the US light vehicle market. I’m quite thankful that Calculated Risk, the long-time blog on the US economy, keeps an updated chart series of this data, because it will help set the context for JD Power’s outlook and where we are in the current oil cycle. The forecast? For the annual rate of US automobile sales to reach 14 million by the second half of 2012. That would make for a healthy advance in auto sales from the current rate, around 13.25 million. Let’s take a look then at the multi-decade chart for light vehicle sales from 1967-2011.
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