Click to enlarge.
That chart sure rings a bell.
Click to enlarge.
That leads us to the following chart.
Click to enlarge.
And lastly, the musical tribute.
Source Data:
St. Louis Fed: Not in Labor Force
St. Louis Fed: Population
St. Louis Fed: Spot Oil Price: WTI
St. Louis Fed: CPI
I've used this musical tribute before. What can I say? It's one of my favorite songs.
ReplyDeleteIn my opinion, at it relates to oil there are actually two things that can hurt labor force participation.
ReplyDelete1. Higher real oil prices right now.
2. Fear of higher real oil prices in the future.
Even if we don't actually get higher real oil prices in the future, there is certainly fear of higher real oil prices in the future. And in the end, that's all it would take to slow job growth in the present.
That's especially true with the Fed actively promoting higher oil prices to somehow magically "save" our economy. They won't admit to that of course. In their view, the inflation they seek will mysteriously find its way into wages instead of oil. You know, because the world has far more wage speculators than oil speculators (sarcasm). Just because this theory hasn't worked all that well so far doesn't mean that it won't somehow work in the future (more sarcasm).
Bernanke doesn't seem to understand why the economies in Mad Max movies had frustratingly slow growth. Perhaps it was because the movies weren't created by economists with PhDs. They were imagined by creative people, living in the real world, who somehow understood the effect of rising oil prices on the economies of the world (presumably using a combination of both common sense and extrapolation). Go figure.
Of course, Bernanke may fail at his task in more than one way. Oil prices are theoretically high enough to crash again (as is the stock market). If you could tell me that oil prices will crash then I'd still be in bunker mode. As far as I am concerned, failed monetary policy is not exactly the best foundation for a renewed era of optimism.
Energy is a wealth multiplier.
ReplyDeleteThe first day of my History of Technology class 20-odd years ago, the prof asked the class, "What was the most significant invention?", and I proffered the steam engine, and I still stand by that.
Though it's kinda shocking comparing our trade imbalance in oil/OPEC vs. goods/China. There's a healthy order of magnitude difference here.
$28B in Sept deficit with China vs. $26B in oil!
WASF, especially if and when the Chinese start wrapping around their dollars into oil supply security!
$10 gasoline is a certainty for me, everything else is unknown.
Seriously. I have no idea what's going to happen this decade and next other than gas is hitting $10.
Energy is a wealth multiplier.
ReplyDeleteMasterfully understated.
I'd recommend Richard Heinberg's book "The Party's Over". It begins with a great history lesson on how modern society evolved on ever more powerful forms of cheap, plentiful energy.
Where I live is an odd place, if I could have the heat of the summer in the winter and the cold of the winter in the summer it'd be great.
ReplyDeleteThere's gotta be a way to do this.
Perhaps a heat pump to get access to that 70-degree happy medium beneath my feet would work.
That and solar. We get pretty decent insolation here, it's not muggy at all so we only need AC in the summer if it's sunny.
Dur.
Hi Mark,
ReplyDeleteGreat post.
Thank you,
Audrey
Mark, that link to the Bernanke article made me want to vomit. Revolting.
ReplyDeleteI have an open question for the forum: OWS says that Wall Street banks are getting loans from the Fed at ~0% and then lending back to the Treasury at 2% and pocketing the difference. A risk-free carry-trade so-to-speak.
But in truth, why would they loan back at 2%, implying 10yr notes, rather than at 0.25% for much shorter duration?
Would a bank really risk buying 10yr. notes to get a "free" 2% interest when that would leave them exposed to a loss on the face value of the notes given a rise in interest rates?
[TINFOIL]
Unless they're conspiring with the Fed/Treas. to fix interest rates long-term?
And they wouldn't engage in collusion, would they? (said TIC)
[/TINFOIL]
Troy,
ReplyDeleteI don't think we'll see $10 gasoline within the next decade and yet I'm still bearish. That would imply an average annual growth rate of roughly 10%.
That's just an opinion though and I do have stagflationary in my name. I would therefore definitely not rule it out!
I prefer a more general prediction. I strongly suspect that the price of gasoline will choke this economy again within the next decade. In fact, it might be doing so this very minute (we entered a recession in December 2007 with oil prices pretty much what they are right now).
And lastly, if gasoline prices really do hit $10 per gallon in the next decade then we have not even remotely hit maximum pain yet for this economy. That would be brutal.
tj and the bear,
ReplyDeleteMasterfully understated.
Indeed. Troy deserves the 2011 Jeremey Siegel Caveman Award for Outstanding Understatement in a Modern Economic Comedy/Tragedy.
Hahaha! :)
Audrey,
ReplyDeleteGood to see you again. :)
Fritz_O,
ReplyDeleteBut in truth, why would they loan back at 2%, implying 10yr notes, rather than at 0.25% for much shorter duration?
Would a bank really risk buying 10yr. notes to get a "free" 2% interest when that would leave them exposed to a loss on the face value of the notes given a rise in interest rates?
I offer a competing moral hazard theory.
Would CEOs maximize long-term risk [AGAIN] if it mean maximizing short-term personal gain [AGAIN]?
What's the worst that could happen? Banking bonuses can skyrocket in good times [AGAIN] and it's not like they can turn negative in bad times [AGAIN]. Further, if they really screw up but are too big to fail [AGAIN] then they'll be getting free cash from taxpayers [AGAIN] which should be supportive of future bonuses [AGAIN].
Note that I was able to replace [TINFOIL] disclaimers with [AGAIN] disclaimers. Sigh.
In truth, you could have replaced the [AGAIN] tags with [OBVIOUS] tags.
ReplyDeleteYour summation is excellent, and I had one of those "why didn't I think of that, it was so obvious" moments.
I need to work on my contemptuous distrust of human nature and motives. Then I'll be able to apply the [CYNICISM] tag to more of my posts. Give me time.
In the mean time I come here for my daily dosage.
In fact, it might be doing so this very minute
ReplyDeleteNathan Martin (economicedge blog) has put up pretty convincing data (with charts) showing that oil at $80+ does exactly that.
I don't think we'll see $10 gasoline within the next decade
ReplyDeleteI just think $10 is the true point of pain that would serve to ration gas, ie. is the FMV of the utility gasoline affords us.
I don't know what supply is going to look like, though I suspect it's going to remain flat at best.
I don't know what demand is going to look like, other than it's going to remain flat at best.
But I do think I know what inflation, devaluation, and our accumulated trade deficits are going to do.
The price of oil is the one thing out of the System's control.
It will be what it will be.
Mark,
ReplyDeleteThanks.
I've had crisis fatigue, so
I took a little trip into lala land via websites on the Ascension. They believe we all are going to turn into aliens and it's going to be the 5th dimension soon and we won't need food and we'll all be happy, happy. Sigh. Reality isn't nearly as romantic.
I think it's all advertising for the gold crowd... Every once in a while they throw in something about how you should have gold, cause you'll need it temporarily before you turn into a 5-d transparent 7 foot alien.
Clever advertising.
Darn, why'd I have to be born with a brain.
Just kidding.
Those people are just waiting in line to get taken advantage of.
At least I've lasted this long without falling into any of the traps of the last ten years.
Keep up the good work.
Audrey
Fritz_O,
ReplyDeleteIn the mean time I come here for my daily dosage.
Take two pills and call me in the morning!
In all seriousness, what really would have happened had Neo taken both pills?
tj and the bear,
ReplyDeleteI really don't think the global economy likes $100 oil (in inflation adjusted terms). It seems to be the breaker of things thought to be unbreakable.
Troy,
ReplyDeleteBut I do think I know what inflation, devaluation, and our accumulated trade deficits are going to do.
I don't really know what to think. The global economy has become a Rube Goldberg machine. I don't trust any of it to do the obvious. Sigh.
Audrey,
ReplyDeleteEvery once in a while they throw in something about how you should have gold, cause you'll need it temporarily before you turn into a 5-d transparent 7 foot alien.
That is TOO funny!!!
And tragic. I should probably mention that too. ;)
Mark,
ReplyDeleteI spent some time running through the gobbledy gook before I gleaned that synopsis. I might be wrong, but then, they make it pretty difficult to tell what exactly they are claiming. And the gold angle is subtle, or perhaps my imagination.
Yes, hilarious. And very tragic.
But any more tragic than reality? I'm torn on that question. And I don't even understand about a quarter of the technical data (or more). I'd probably be even sadder if I did.
Humor might be the most valuable thing in the world.
Audrey
Audrey,
ReplyDeleteYes, hilarious. And very tragic.
But any more tragic than reality? I'm torn on that question.
Got Japanese Ghost Prank?