Ever wondered why the real estate bubble popping hasn't caused a recession yet? The media and quite a few bloggers can sure make it sound like it should. The thing is that sub prime mortgages although certainly a problem for some don't affect that much of the population. Oil now is a whole n'other story altogether. The popular belief is that the Fed tightened in 2000 and burst the bubble and sent the economy into a mild recession. Certainly a factor. However one small fact that no one seems to notice is that during that time oil almost tripled in a year. Energy is required by everyone, it's the life blood of an economy. When the price spikes rapidly it sends a shock wave through the economy usually leading to a recession down the road. As long as it rises gradually all is well. Kind of like putting a frog in a pan of warm water. As long as you turn up the heat slowly he will sit right there and boil to death. However if you throw him in the boiling water right off the bat he'll jump right back out. I've said this before, the problem with printing money is it causes inflation. Unless the Fed can figure out a way to keep all that money out of the commodity markets especially oil we're going to have a problem on our hands down the road. We had severe inflation problems and several recessions in the 70's and 80's along with several oil shocks. We we're fighting the Vietnam war and trying to pay for it by printing money. See a pattern here. So keep an eye on oil if we see a spike to $90-$100 this year then bad things could be just around the corner.
2 months ago