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Oil, Commodities, And The Dollar Trade January 8, 2015

Posted by OromianEconomist in Economics, Oil, The sate of world Economy, Uncategorized.
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‘The world’s debt situation has become a gigantic Ponzi scheme that makes all others look like children trying to sell candy to a baby. So what is the world situation on oil supply? There is currently an excess of supply and a reduction in usage. China is no longer using oil at a burn rate that makes the Americans look like Sunday drivers. But that is not all that is happening. Commodity prices are falling greatly due to lack of demand. China is no longer building factories and cities that will never be used. Their demand for electrical production has been reduced through lack of industrial activity and gigantic construction projects. In the past ten years the play was in commodity speculation and boy did the speculators speculate, steal, even. Not that demand has collapsed the prices for raw commodities has collapsed with it. Australia is hurting and will suffer some severe economic reverses. Already mines are closing and layoffs appearing. Their housing bubble is bursting as it their job markets. And they are the only ones. Many developing countries are starting to see their trade with China decline. Right now China has become the middle man in the world markets. Where it once produced products using its own labor forces and factories, it has out sourced the unfinished parts to the various undeveloped countries where labor is still cheaper. But here in America we have seen a downturn in demand of goods coming from China.’

Short term effect on the average consumer as oil prices drop. (Theoretical approach) December 28, 2014

Posted by OromianEconomist in Economics, Uncategorized.
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Most economists agree that Oil is considered to be a normal good, by normal we mean that as your income goes up you would buy more of that good, that is a basic definition. As oil prices fall you would expect that oil consumption would increase, however in the short-run that is not the case. Oil in fact is inelastic in the short run, inelastic means that its consumption is not sensitive to price. Companies still need to operate at the same rate to satisfy their operations and people still need to drive to get to work. It takes time for markets to adjust and people to change their way of living. The long run is a different topic by itself and is out of the scope of this post. You are not going to buy a 8 cylinder pick up after you hear oil fell this month are you?

We can then agree that oil consumption would not change in the short run. Now we can check the graph that I have made to illustrate a theoretical approach of what consumers are going through at this point of time.

The irrational observer

Most economists agree that Oil is considered to be a normal good, by normal we mean that as your income goes up you would buy more of that good, that is a basic definition. As  oil prices fall you would expect that oil consumption would increase, however in the short-run that is not the case. Oil in fact is inelastic in the short run, inelastic means that its consumption is not sensitive to price. Companies still need to operate at the same rate to satisfy their operations and people still need to drive to get to work. It takes time for markets to adjust and people to change their way of living. The long run is a different topic by itself and is out of the scope of this post. You are not going to buy a 8 cylinder pick up after you hear oil fell this month are you?

We can…

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