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After the credit boom comes the long and painful squeeze
David Smith, UK Times
The age of cheap food and energy is over for Britain as the world’s economic balance shifts. Our Economics Editor explains how bad the pain will be and how long we are likely to feel it
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… The storms blowing across the global economy are buffeting Britain and other countries. Two big and malicious weather fronts – the credit crunch and a surge in world oil prices – are combining to create the toughest economic conditions for decades. The world, which for 15 years has been an economically benign place, is suddenly looking harsh and unpredictable.
These conditions are also, for the moment at least, producing a profound shift in the global balance of economic power. While America, Britain, Europe and Japan – the old powers – are struggling, plenty of other countries are making hay.
… The highly unusual thing about the turmoil is that while the OECD’s members are skirting dangerously close to recession, those who are not members of the club are enjoying an economic party. America is growing by barely 1%; Britain, Europe and Japan by roughly 1.5%. But in the rest of the world, growth rates of more than 7% are common, particularly in China, India and commodity-rich nations such as Russia and Brazil.
There have been big transfers of wealth to oil producers before, most notably in the 1970s. Rarely, though, has the world looked as lopsided as it does now.
The unbalanced nature of the global economy is one reason why things are so tough.
(15 June 2008)
Oil crisis: £100 to fill up the tank? Just get used to the idea
Jamie Doward, Gaby Hinsliff, Lisa Bachelor and Tim Webb; The Observer
Queues at petrol stations may be a chilling taste of things to come. Prices are soaring, experts warn of shortages ahead, and some say the world is running out of fuel. Already people are getting out of their cars and finding other ways to travel, while less scrupulous drivers are stealing diesel. Has the motor car just stalled – or are our driving habits changing for ever?
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… Suddenly it seems everyone is watching the petrol pumps, the final delivery points in a global distribution network that connects countries, ideologies, governments and money markets. From the traders on Wall Street betting on further oil price hikes to the Russians planting a flag under water at the North Pole to stake their claim to as yet untapped reserves; from a nervous Gordon Brown battling to keep the UK economy afloat, to the makers of Humvees and Britain’s road hauliers facing a bleak future, everyone has an interest in what is happening on the forecourts. Whereas once house prices were the talk of many dinner parties, now the question is: ‘How much does it cost to fill up your car?’ Experts predict that very soon, for most people, the answer will be £100.
… Britain’s love affair with the car may be heading for a crash.
(15 June 2008)
Surging Oil and Food Prices Threaten the World Economy, Finance Ministers Warn
Martin Fackler, New York Times
The global economy faces a one-two punch from slowing growth and soaring fuel and food prices, finance ministers from the world’s richest nations warned Saturday, though they stopped short of offering concrete solutions.
Finance ministers from the Group of 8 industrialized nations wrapped up a two-day meeting in Japan that was dominated by talk of rising petroleum prices, which have set off street protests across the world. In a statement, the ministers said higher prices of oil and other commodities threatened the world economy at a time when it was still reeling from the collapse of the housing market in the United States.
(15 June 2008)
From Indonesia to the US governments stand powerless in face of markets
David Blair, Telegraph
The slums of Jakarta, Indonesia’s giant, sprawling capital, are among the largest in Asia. In their shacks clustered around teeming alleys, millions of people endure grinding hardship of a kind that few in the rich world could imagine.
At the stroke of midnight on May 23, their poverty was suddenly worsened. The rise in global oil prices forced Indonesia’s government to punish the poor by increasing the cost of fuel by an average of 28.7pc.
There was no unrest on the streets of Jakarta after the announcement. Many of Indonesia’s 200 million people understand a simple truth: their government is almost entirely powerless in the face of global economic forces.
When the oil price rises, there is precious little anyone can do in response. The authorities have tried to protect slum-dwellers by keeping fuel prices low with a system of national subsidies.
Yet the rising cost of oil is making this steadily more expensive, blowing an ever larger hole in the country’s budget.
(13 June 2008)
Why is the cost of living going up?
Dean Morris, Moneyweb (South Africa)
So, where are the increases in living expenses coming from?
Energy and food:
Welcome to Peak Oil! The basis of the argument of Peak Oil is that at some time during the extraction of oil from the oil fields there comes a time where one reaches peak production.
… There are alternatives on the table, and the large movements will be in the production of electricity. However , for transport there is no viable alternative to our current fuel. Yes, there are technical replacements (hydrogen, ethanol, fuel cell, battery) but each has its own weakness in terms of filling the gap of liquid fuels. Yes, a combination would go far to replace a portion of our fuel requirement, but the replacement at cheap levels and the current volume used, is not possible.
… In conclusion, I’d like to say this: I’m not scare-mongering. I’ve been researching this subject of worldwide economics and geo-politics for 4 years. It doesn’t sound like a lot, until I tell you that I’ve read over 130 books on the subject, and I read daily for several hours. Further, I listen to 5 hours of investment reports every week on my way into work, and I explore mostly the history of financial and economic events. Personally I’d say that I’ve devoted about 2500 hours over the last 4 years to this area of study.
It is eerie how history does repeat itself, and the events we are going through today, whilst unique in their time-frame, have happened before in terms of the cause and effect relationships established.
… There is a paradigm shift underway, and in a nutshell, it could be called “The End of Consumerism”. We are at one of those historical turning points, and if the events happen as described, we need to be prepared to deal with them. The turning point will take years, possibly decades to occur, and during the turning point, there will be much unrest and dislocation as people attempt to find their footing in their future based on their experiences of their past. That will surely prove economically fatal, as the past few decades have not prepared us for the changes ahead.
Fortunately, history is replete with such changes and turning points, and right now it is the only rule-book we have. And this is not a South African phenomenon; it is worldwide.
(15 June 2008)
The End of Cheap Oil as an Opportunity
Claude Lewenz, World Changing
Housing prices are collapsing. The price of gasoline at the pump is skyrocketing. Soon the price of everything based on oil will skyrocket. The value of the US dollar is plummeting. Jobless rate hits a 22 year high. Meanwhile the son of the US Senator who sponsored the landmark, $10 billion Federal-Aid Highway Act of 1956 (sponsored by Senator Al Gore Sr.) tells us that we face environmental catastrophe if we don’t curb greenhouse gasses caused in part by building and using the highways his father funded.
How did we get into this mess? Any chance these things are related? And, once we understand the answer to those questions, how can we get out of it and point instead to where we would rather be heading?
(11 June 2008)
