is there a war coming?

[theskull1]

When two people have the both hands on each others throats, the stronger one knows he'll suffocate the other one before he runs out of air.

America and Saudi are betting that they've more air in the tank than Russia

[seafoid]

Does anyone believe that this oil price collapse isn't a power play by the west and their Arab cohorts?

I think it's fair to say that Saudi Arabia is happy to see the price plummet to put a lot of the competition out of business. But seeing as the most vulnerable competitors are American frackers, it's not really in the interests of the west, i.e. America.

The pros for the US include destroying the Russian economy, hammering the Iranian economy and cheap prices at the gas station for a couple of years in the run up to a presidential election.

The con is a delaying in the extraction of wealth for the frackers.

I think it is definitely in the interests of the US.

The fall in the oil price is bad for the Eurozone which is fighting deflation.
It needs inflation to get the debt burden down.
It's bad for highly leveraged frackers as well. And countries like venezuela.

Surely lower energy prices for the EU will reduce 'imports', improve national trade deficits and leave more money in people's pockets? Not that this is the objective of course.

All that but it will put downward pressure on wages leading to more price falls which lends to heavier debt burdens since deflation increases the real value of debt.
EZ inflation was something like 0.2% in September  with falling oil prices blamed.
The ECB has a target of 2% inflation.   And needs more like 3-4%.

I am no economist but I don't get this sweeping statement that all deflation is bad.

Certainly overall deflation is not good. But, for example, technology always has deflation. A plasma TV or 1 Terra-byte computer would have cost a fortune 8 years ago. But their price always deflates and it still doesn't stop people buying what is actually a luxury item, while they wait for the price to come down, which they know it will. (Actually whey do wait initially and then buy away regardless one it is affordable. After that deflation is irrelevant.).
Obviously property deflation is problematic as it is linked to debt and bank balance sheets, and for most people is probably their largest purchases in their lifetimes.But energy prices falling and affecting inflation. How can that be bad? Cheaper energy for people. It is not as if they will put off buying energy due to the falling price. We buy it when we need it.

What am I missing here?

Deflation and what it means for debt

All of the adjustment required by the Germans will take place through austerity and price deflation in the periphery. Most of the adjustment still lies ahead. Furthermore, it has been decided that debt burdens will be reduced by paying them off – not by inflation, default or debt forgiveness. So for Italy the Germans want to see prices falling and wages falling to get the economy competitive again.
This is nuts.  If Italy already has a debt to GDP ratio of 130% and the economy contracts by say 10% over 4 years as deflation takes hold
(reminds me of this song https://www.youtube.com/watch?v=zuuObGsB0No)

then it will have a debt to GDP ratio of 130/0.9 = 144% or so - all going in the wrong direction

Normally you expect debt burdens to reduce as the economy grows but with deflation it grows. 
Bond markets are not pricing deflation into yields. Deflation makes default more likely.

[muppet]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

[seafoid]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

It depends on what happens to salaries and price expectations.
If people expect prices to fall they'll hold off until they do.
So that ipod can wait until February. 
the Euro is already struggling to shake off deflation.

[muppet]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

It depends on what happens to salaries and price expectations.
If people expect prices to fall they'll hold off until they do.
So that ipod can wait until February. 
the Euro is already struggling to shake off deflation.

But technology is always getting cheaper. That iPod in February might be a 128GB rather than a 64GB.

One difference I could see is that grain prices might fall as a result of a drop off in demand for biofuels thus driving prices down.

[seafoid]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

It depends on what happens to salaries and price expectations.
If people expect prices to fall they'll hold off until they do.
So that ipod can wait until February. 
the Euro is already struggling to shake off deflation.

But technology is always getting cheaper. That iPod in February might be a 128GB rather than a 64GB.

One difference I could see is that grain prices might fall as a result of a drop off in demand for biofuels thus driving prices down.

Pick cars then. Or stuff that usually increases in price.
When people hold off on buying because they expect prices to fall it's very hard to stop the cycle continuing.
Debt requires  economic growth , otherwise it strangles the economy.

[CiKe]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

It depends on what happens to salaries and price expectations.
If people expect prices to fall they'll hold off until they do.
So that ipod can wait until February. 
the Euro is already struggling to shake off deflation.

But technology is always getting cheaper. That iPod in February might be a 128GB rather than a 64GB.

One difference I could see is that grain prices might fall as a result of a drop off in demand for biofuels thus driving prices down.

Pick cars then. Or stuff that usually increases in price.
When people hold off on buying because they expect prices to fall it's very hard to stop the cycle continuing.
Debt requires  economic growth , otherwise it strangles the economy.

Not an expert but think

1) lower oil prices should stimulate aggregate demand and therefore growth as obviously oil is an input for many more industries than it is an output.

2) while it is true that initial inflation readings will be lower as a result of lower oil prices, if prices were to stay the same for a year then the impact on inflation will be removed as the base level has changed. Think what is important is not so much the current rate of inflation but inflation expectations for the future and as a result of 1) if nothing else was going on, then inflation expectations should go up

There is a lot else going on however. Russia looks to be in full blown currency crisis and Indonesia's currency not so hot either, while China is slowing down. All in all, it looks like EM demand is slowing, so possible that EU local demand goes up but falling demand from EM offsets this partially or completely. What the net impact on euro zone inflation will be I have no idea...

[CiKe]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

It depends on what happens to salaries and price expectations.
If people expect prices to fall they'll hold off until they do.
So that ipod can wait until February. 
the Euro is already struggling to shake off deflation.

But technology is always getting cheaper. That iPod in February might be a 128GB rather than a 64GB.

One difference I could see is that grain prices might fall as a result of a drop off in demand for biofuels thus driving prices down.

Pick cars then. Or stuff that usually increases in price.
When people hold off on buying because they expect prices to fall it's very hard to stop the cycle continuing.
Debt requires  economic growth , otherwise it strangles the economy.

Not an expert but think

1) lower oil prices should stimulate aggregate demand and therefore growth as obviously oil is an input for many more industries than it is an output.

2) while it is true that initial inflation readings will be lower as a result of lower oil prices, if prices were to stay the same for a year then the impact on inflation will be removed as the base level has changed. Think what is important is not so much the current rate of inflation but inflation expectations for the future and as a result of 1) if nothing else was going on, then inflation expectations should go up

There is a lot else going on however. Russia looks to be in full blown currency crisis and Indonesia's currency not so hot either, while China is slowing down. All in all, it looks like EM demand is slowing, so possible that EU local demand goes up but falling demand from EM offsets this partially or completely. What the net impact on euro zone inflation will be I have no idea...

From FT yesterday:

http://www.ft.com/intl/cms/s/2/3f5e4914-8490-11e4-ba4f-00144feabdc0.html#axzz3M65PuWB7



"In normal times, the broad effects of the oil price drop on the global economy are well known. It should act as an international stimulus that will nevertheless redistribute heavily from oil producing countries to consumers and the longer the new prices endure, the more profound will be the effects on the structure of industries across the world.
But this time, economists are actively debating whether the world has changed and other moving parts — such as falling inflation levels and the strong dollar — will throw sand into the works of the usual economic relationships.
But when oil prices fall, there is no iron law that enhances global economic growth. The main effect is a huge redistribution from oil producers, who receive less for the effort of extracting the black gold, to consumers who benefit from cheaper transportation and energy, enabling them to spend more money on other goods and services or to save their windfall.
Most economists still agree with Christine Lagarde, IMF managing director, who this month said that "it is good news for the global economy". The positive effect on growth should arise because oil consumers tend to spend more of their gains than oil producers cut their consumption."

[seafoid]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

It depends on what happens to salaries and price expectations.
If people expect prices to fall they'll hold off until they do.
So that ipod can wait until February. 
the Euro is already struggling to shake off deflation.

But technology is always getting cheaper. That iPod in February might be a 128GB rather than a 64GB.

One difference I could see is that grain prices might fall as a result of a drop off in demand for biofuels thus driving prices down.

Pick cars then. Or stuff that usually increases in price.
When people hold off on buying because they expect prices to fall it's very hard to stop the cycle continuing.
Debt requires  economic growth , otherwise it strangles the economy.

Not an expert but think

1) lower oil prices should stimulate aggregate demand and therefore growth as obviously oil is an input for many more industries than it is an output.

2) while it is true that initial inflation readings will be lower as a result of lower oil prices, if prices were to stay the same for a year then the impact on inflation will be removed as the base level has changed. Think what is important is not so much the current rate of inflation but inflation expectations for the future and as a result of 1) if nothing else was going on, then inflation expectations should go up

There is a lot else going on however. Russia looks to be in full blown currency crisis and Indonesia's currency not so hot either, while China is slowing down. All in all, it looks like EM demand is slowing, so possible that EU local demand goes up but falling demand from EM offsets this partially or completely. What the net impact on euro zone inflation will be I have no idea...

Normally it might stimulate demand but the main problem now is weak bargaining power for workers meaning pay rises are no higher than inflation. So petrol might be cheaper but they won't get real pay rises.
The neo Victorian distribution of wealth is also favourable towards deflation. Rich people don't care about it as long as asset prices stay high. they are more afraid of inflation.

[CiKe]

Yes but surely deflation of energy prices, imported into the EU, is not the same as a reduction in the purchasing power of the Euro, which is the deflation they are talking about.

Inflation and deflation are actually defined as the increase and decrease of the money supply. Prices are a secondary effect that sometimes don't follow the rule. E.G the US has dramatically increased the money supply, but there has been little inflation in the US. The EU is about to try the same thing.

Anyway, I am curious as to the real effect of falling oil prices, which is an import into the Eurozone (i.e. we don't produce any) on the money supply. There have to be many effects other than a simple deflationary one.

It depends on what happens to salaries and price expectations.
If people expect prices to fall they'll hold off until they do.
So that ipod can wait until February. 
the Euro is already struggling to shake off deflation.

But technology is always getting cheaper. That iPod in February might be a 128GB rather than a 64GB.

One difference I could see is that grain prices might fall as a result of a drop off in demand for biofuels thus driving prices down.

Pick cars then. Or stuff that usually increases in price.
When people hold off on buying because they expect prices to fall it's very hard to stop the cycle continuing.
Debt requires  economic growth , otherwise it strangles the economy.

Not an expert but think

1) lower oil prices should stimulate aggregate demand and therefore growth as obviously oil is an input for many more industries than it is an output.

2) while it is true that initial inflation readings will be lower as a result of lower oil prices, if prices were to stay the same for a year then the impact on inflation will be removed as the base level has changed. Think what is important is not so much the current rate of inflation but inflation expectations for the future and as a result of 1) if nothing else was going on, then inflation expectations should go up

There is a lot else going on however. Russia looks to be in full blown currency crisis and Indonesia's currency not so hot either, while China is slowing down. All in all, it looks like EM demand is slowing, so possible that EU local demand goes up but falling demand from EM offsets this partially or completely. What the net impact on euro zone inflation will be I have no idea...

Normally it might stimulate demand but the main problem now is weak bargaining power for workers meaning pay rises are no higher than inflation. So petrol might be cheaper but they won't get real pay rises.
The neo Victorian distribution of wealth is also favourable towards deflation. Rich people don't care about it as long as asset prices stay high. they are more afraid of inflation.

Don't dispute that worker bargaining power is low right now but you claimed that lower oil prices will put further pressure on wages and say that lower oil prices are bad for the eurozone. I'm not following your logic as all else equal lower oil prices are good for the economy which is good for the average worker. Or maybe better to look at this the other way around.  Workers may not see their gross pay increase but they should have more disposable income to spend on non-essentials. If we assume not all is saved then that leads to growth.

I'm not trying to dispute deflation is a serious and worrying threat by the way.

[muppet]

[seafoid]

Increased US production and reduced demand. China is slowing down. Commodity prices are down a lot over the last 6 months as well. 

[muppet]

Increased US production and reduced demand. China is slowing down. Commodity prices are down a lot over the last 6 months as well.

Obama's people have shown themselves to be very clever and able to get things done with or without The Senate & Congress, and notably without going to war.

[seafoid]

Increased US production and reduced demand. China is slowing down. Commodity prices are down a lot over the last 6 months as well.

Obama's people have shown themselves to be very clever and able to get things done with or without The Senate & Congress, and notably without going to war.

"Stock markets believe slide from peak of $115 a barrel reflects slowdown in China, recession in Japan and looming eurozone deflation"

http://www.theguardian.com/business/2015/jan/05/asda-cuts-petrol-price-diesel

I hope Obama is not too deflated

[muppet]

Increased US production and reduced demand. China is slowing down. Commodity prices are down a lot over the last 6 months as well.

Obama's people have shown themselves to be very clever and able to get things done with or without The Senate & Congress, and notably without going to war.

"Stock markets believe slide from peak of $115 a barrel reflects slowdown in China, recession in Japan and looming eurozone deflation"

http://www.theguardian.com/business/2015/jan/05/asda-cuts-petrol-price-diesel

I hope Obama is not too deflated

It is Putin who is deflated.