Friday, August 5, 2011

500 points & $5/Barrel

The victory of Austerity Economics in DC continues to wreck havoc in the stock and oil markets. The markets understand one thing: the US economy is weak and slashing demand by massive spending cuts right now will cause GDP to contract. That GDP decline will then make worse the long-term debt problem.

Just in case the message was lost on ideologues, the markets yesterday melted down after 10 days of warning.

Smashing demand is one way to get cheap oil. In December 2008 as the world hurtled to Depression, oil plummeted to $33. US GDP contracted about 8% in the 4th quarter of 2008.

Do we want to repeat?

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