Monday, November 28, 2016

Gas Prices And Change

The Bauman Society warns of the problems related to falling oil costs:

As you likely realize every time you pump gas into your car, the cost of fuel has dropped by about 50% over the last two years.

The Fall of Crude

This is great news for consumers, but it’s bad news for the exploration companies extracting black gold from rocks and sand. 

And as bad as it is for those companies, it’s absolutely awful news for the states that have been collecting “severance” payments from all that oil being recovered. Oil provided a massive tax base for these states. Alaska, for example, made so much money from crude, it’s been known to pay residents an oil dividend every year.

This year, the governor said he’s going to give residents half as much as they received last year and cap the total payout to just $1,000. Yet this actually understates their problem: Alaska has a $4 billion hole to patch up thanks to lost oil-severance payments.

In an interview with MarketWatch, Alaska’s director of Office Management and Budget said: “We could close every school in the state and that still wouldn’t be enough to close the budget gap.”

While Alaska has the biggest problem, it’s not alone. Oklahoma and North Dakota each have a $1.3 billion deficit to fill. Louisiana’s is $2 billion.

So how will these budget gaps be rectified? By cutting spending and raising taxes, that’s how. That means more unemployment and less spending. In other words, these four states — which previously led the U.S. economy — will now become a drag.

That’s terrible news when the GDP of our nation is barely growing at a 1% clip. The last thing we need are more problems to hold back our economic potential.

And I’m afraid things are going to get worse before they get better. As James Dale Davidson and Charles DelValle have mentioned countless times, we are in the midst of a major shift in the global economy. The rules that were once considered “conventional wisdom” are fading away.
 All the various economies around the world are increasingly intertwining and becoming more complex. As author and historian Joseph Tainter pointed out in his book The Collapse of Complex Societies, the deeper the integration between these various economies, the more susceptible they become to a major problem.

So now, rather than wonder about what’s happening in the oil patch exclusively, we have to worry about what China’s future monetary policies will be … what Russia may do with its hoard of treasury bonds … or whether the European Union will splinter apart and push the entire globe into a new financial crisis.

We are heading full steam toward a collapse. And while we don’t have a crystal ball to tell us precisely when this will all take place, we do know that it’s inevitable. Because as every day goes by, we see more and more pieces falling apart.

All of which could mean big changes for the local real estate market...stay tuned!

Happy Investing! 

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