Friday, May 18, 2012

Could Falling Oil Prices Signal Obama Loses Election?

The oil price and political fortunes are, indeed, tightly linked.

And so, from January to April, as gasoline prices surged upward, President Obama's political opponents led by Fox News barely disguised their glee that high and rising oil prices could cost the President the election. They strained mightily to blame the price increase on the President but quickly said the President had nothing to do with the recent 40 cent per gallon price decline.

Obama's opponents reflected conventional wisdom that only high and rising gasoline prices pose political peril, as consumers strain to pay gas costs and grow angrier as prices climb. But plummeting oil prices can also signal economic rocks ahead and danger for incumbents.

The oil price is the canary of the world economy.  And when oil prices fall below $70, they signal that the global economy is contracting and deflation, not inflation, is the major threat.  Remember that the US last enjoyed cheap oil--$33 oil--in December 2008, when the world economy was hurtling into a depression.

In fact,  when the world economy is healthy, oil prices are neither too hot nor too cold, in a range of about $70 to $95.  Yesterday's WTI price of a bit below $93 is exactly within that range.

So far, the falling oil price that has cut my personal gasoline costs by 46 cents per gallon is a welcome relief to consumers, good for the US economy and benefits President Obama. And a further decline would still be good for consumers and the President's prospects.

But this oil price decline has its roots in rising world economic danger that could end Obama's Presidency.
Austerity economics has driven Europe into a mixture of a depression, with unemployment above 20% in several countries, and a deepening recession.  China's growth rate remains positive but is falling, and the loss of Chinese economic growth ripples around the world. Just as the oil price falling below $70 meant in 2008 that the world's economy was deflating and contracting, if it falls below $70 now, it would mean that the global economy is seizing and demand is collapsing.

As $110 oil recedes in 2012, the new politically crucial oil price is $70.  If the price falls below it, the President would almost certainly lose the election, since that would mean another global economic collapse was unfolding.

1 comment:

  1. I love how you speak the TRUTH John.....Gonna be interesting and SCARY to see what the American Public decide to do. Time will tell.