[GermanDom]

In the 1970s when oil demonstrated itself to be a finite resource, its shortage meant one thing: Inflation. But what we tend to forget is that the shortage occurred in an already inflationary environment. The baby boomers were moving into the economy in most of the West, the Cold War, Viet Nam and Apollo needed to be funded, and the S-curve of world population growth was at its mid-point. A shortage of oil was the last straw in the era of Stagflation.

Presently, however, the developed world is hovering at a nearly inflationless state, hoping not to move into deflation as Japan did during the 1990s. The reasons include productivity increases due to new (mass) technologies, a flattening or even falling population pattern in the West (and China!) as well as the graying of the baby boomers - signifying an evident fall in consumption. Increased consumption on the part of China and India will definitely have an effect, but it will not counterbalance the equation completely.

At the same time, economists around the world realize the hazzards of slipping into deflation, for our monetary system is dependent on the payment of interest rates. How are we going to keep at least a minimal of inflation around?!

OIL! Or the shortage thereof.

Whether we come up with real solutions immediately or not doesn't really matter. What matters is that more will be consumed (monetarily due to rising energy prices) and that a host of new activities will be unleashed in the attempt to solve oil's problems. It will certainly be good for the job market...

I'm not going to claim that everyone will benefit, but it will certainly be positive.

[AdzP]

Hi
I think this is actually a very interesting topic.

However it almost always ends with `free market` true believers shouting at one, because it seems to end up - i say seems - suggesting a fundamental difference in opinion about the present economic system.

I'll simplify for speed...and my own ignorance.

Basically if ones takes a more sceptical view of world economics; that it is essentially continually centralising, converging, consolidating (rather than being `free` and `liberal` and `open`) then it is essentially a deflationary economic system.

`Growth` is merely transference of wealth rather than wealth coming from the heavens/trees/Richard Branson etc.

So we end up with multi layerd economies moving at very different speeds.

For example poor people suffer far more price increases and so wealth shortages than do major oil companies. Their economy (poor people's) is deflating and has been for decades, both the poor in the `first` world and more evidently the poor in the `third` world.

Lots of wealth is moved to - say - major oil companies, it is held within a relatively small number of hands.

Yet national, macro and micro economic figures bundle all these figures into one basket. Therefore you get continued `growth` or `inflationary pressure` coming from the transference of wealth, while ordinary joes/joeesses see no benefits at all in real terms.

So we get to the point where the global economy is squeezing harder and harder to keep that flow of wealth to the few and enable it to function under the terms it always has functioned under.

For example see Hedonics or Hedonic indexing, basically the study of what the poor economy runs at (big simplification but see above).

So if one were to think that many of the poor/middle class/ordinary folk were to see their lives deflate then oil prices could be the balance that keeps national and global economies palatable/excuseable at their current terms.

High oil prices could reflate/infalte economies that are crushing the weakest 90% of the population...

I'd be interested to kick this idea about. Just please dont call me Lenin!

This is an interesting piece:
http://www.usatoday.com/money/economy/f ... doil_x.htm

[Zapatos_Bear]

I am not so sure about the integrity of this idea. It seems plausable that at the beginning the inflation it may be beneficial to the lower populations but in the long run I can see nothing but economic troubles.

Sure the advent of peak oil may provide a quick burst of inflation but when gas starts touching 3 dollars a gallon I don't think that it will be to advantageous to the middle and lower classes.

Our economy is entirely dependent on fossil fuel and despite a "inflation high," we will feel the effects immeadiatly.

[smiley]

Presently, however, the developed world is hovering at a nearly inflationless state,

I don't know where you get the notion that inflation is stagnant.

If we would calculate the current inflation using the old CPI definition we we would end up with a number around 5%. Alternatively if we would use the 2002 Bush/Greenspan definition to calculate the inflation in the seventies we would end up with the notion that the 70's were actually an inflationless environment.

The current adjustments to the CPI (hegemonic deflator, the way rents are incorporated and the way energy is omitted), have rendered the CPI utterly useless as an inflation gauge. It has become completely insensitive to inflation.

To measure the inflation one can look at the prices (perceived inflation) but this can be deceptive. Nevertheless the price increases seem to point at a much higher inflation number than the FED is suggesting.

Alternative one can look at the purest definition of inflation. That is the creation of money without the creation of underlying value. The sole creation of money erodes the value of the currency and therefore creates inflation.

Now the underlying value is a quantity which is hard to determine, but one look at the money supply does confirm that the inflation is much, much higher than the government suggests.

http://www.financialsense.com/resources ... supply.htm

[Kris]

Presently, however, the developed world is hovering at a nearly inflationless state,

The current adjustments to the CPI (hegemonic deflator, the way rents are incorporated and the way energy is omitted), have rendered the CPI utterly useless as an inflation gauge. It has become completely insensitive to inflation.

Also don't forget about substitution, if the price of steak is double the price of hamburger and both double in price the BLS substitutes hamburger for steak in their CPI calculation and ends up with a 0% increase. Governments around the world, lead by the USA, are understating inflation and pursuing inflationary policies to inflate away debt and their pension liabilities.

[Pops]

Just because the campaigns say inflation is low and GDP is peachy doesn’t make it so.

From Urban Survival (Wednesday 9/29), http://www.urbansurvival.com/week.htm:

“Let's look at monetary inflation (read: watering down of the dollar's purchasing power) by those banksters at the Federal Reserve. Here, a visit to http://www.federalreserve.gov/releases/h6/Current/ tells us that if we look at the M-1 inflation (the narrow measure of money stocks), inflation from June 2003 to June 2004 was running (you won't believe this, but I swear by my numbers here...) 5%”

and

“True GDP = Current dollar GDP minus real monetary inflation minus growth of labor force. (More people working should produce more goods and services, you'd think, right?)

In which case we see that 7.1 minus 5.776% -1.13% = True GDP Growth of 0.21% or one tenth of one percent.”
--------------


Of course the real problem is US debt:
Speeches ignore impending U.S. debt disaster

“An array of government and private analysts put the actual U.S. "fiscal gap," which means all future receipts minus all future obligations, at $40 trillion (Government Accountability Office) to $72 trillion (Social Security Board of Trustees).”
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Maybe PO will save the economy but I kind of doubt it.

Of course I’m no expert…