The Oil Drum: Europe – One of the more interesting things about this Friday’s economic news
was the very obvious connection between the unemployment number and oil
prices. What links the two is debt, the defining feature of what I have
called the Anglo Disease,
ie the highly unequal economy whereby the rich and the financial sector
(almost the same thing these days) capture most of the income but hide
it by providing cheap debt to the middle classes so that they can
continue to spend.

Oil has played a fascinating side role in my Anglo Disease series,
allowing the debt bubble to go on for much longer than expected. But
now, instead, it is accelerating the crash. …

Yesterday was a perfect demonstration of these links. Beyond the
bellicose words against Iran coming from Israel, what drove the markets
yesterday was the announcement that the unemployment rate had gone up a
lot more than was expected (to 5.5% instead of the 5.1% predicted by
analysts). That announcement, in turn, made the markets brutally change
their expectations about future Fed rate changes. They had been
expecting increases in the coming months, to fight inflation, but
increases are impossible, politically, at a time when unemplyment is
going up rapidly. The expectation of lower short term rates in turn
drove the dollar down (especially as this came the day after the
European Central Bank said that it would increase rates itself this
summer). The flight away from the dollar then pushed commodities up,
and in particular oil. As speculators had been betting on oil prices
going down, they were wrongfooted and had to abandon their positions
brutally to avoid further losses, thus magnifying the price increase (an aside here: speculators were betting on oil going down not up).

So there you have it: wage stagnation (Anglo Disease) and oil
production stagnation (the fundamental driver of the Countdown diaries)
combining in a perfect storm. But hey, the financiers are still sitting
pretty, and will say that more “reform” and “deregulation” and tax cuts
are needed.

Maybe it’s time to stop listening to what is highly self-interested
drivel, and take back what they grabbed: it’s not theirs. And maybe
it’s time to actually worry about using lots less oil (and gas and
coal).

And, wonderfully, a programme to invest in housing and vehicle
energy efficiency, renewable energy, and infrastructure, paid for by
massive tax hikes on the rich, will help solve the current recession
and the oil crisis. (06/09/08)
more…