Weekend Reading – Will it Matter?

German Finance Minister, Schaeuble arrives at the Athens airport.  

An immigration officer asks him: "Nationality?" Schaeuble says: "German."  The immigration officer asks: "Occupation?" To which Schaeuble responds: "Nein, I am here for a few days only."

"Gallows humor" is popular during depressions.  No one is looking for a belly laugh – just a little smirk to brighten up the never-ending string of despair people usually have to deal with.  Films were a popular means of escape in the 1930s and we were very into IMAX when they were below $12.50 during the crash as we expected a similar move up in movies audiences as we moved through this century's Great Recession.

Gasoline was also persistently high in the 30s (relative to inflation) but came down from a relative $3 per gallon in 1940 to $2 a gallon in the 70s as the US entered an age of prosperity and we built this nation around the idea of having an inexpensive and readily-available fuel source. 

After the initial price shock of the 70s, which pushed us into another recession, things were improving all the way through about 2002, when gasoline prices soared to inflation-adjusted records.  While the supply is still plentiful, the prices are no longer affordable and 86M barrels of oil a day at 42 gallons a barrel x 365 days a year at $3.50 per gallon comes out to $4.6Tn a year.  Of course, not all oil converts to gasoline but you get the idea.  Also, our friends in Europe are reading this and saying "$3.50 a gallon – in your dreams!" as they pay roughly $9 at the pumps.  

Add in the effect the high price of oil has on food and other downstream products that rely on oil and you are looking at oil alone diverting 5% of our global GDP – in EXCESS of the realistic $70 per barrel price – away from more productive uses than buying a commodity that literally goes up in smoke as soon as we use it (see "Goldman's Global Oil Scam Passes the 50 Madoff Mark" for more details).