Oil Bubble

This blog has been predicting for some time (perhaps even a little early) that the oil price "bubble" would burst.  As with the housing "bubble", I did not buy the hype that "this time was different", and that oil was going up forever.  Yes, I was telling people we were in a housing "bubble" as long ago as when the AOL "Pulse" blog still was promoted on AOL (several years ago, in other words, which is why I have no sympathy at all with Wall Street Bernanke, Paulson, or Congress as to failing to anticipate the "crisis".

As I have told you in this blog before, I was here in Texas (circa the 1980's, although I no longer even remember the exact year it happened, but the event itself was huge in Texas) when every bank in Texas went under. That was when the first oil price "bubble" burst. Banks had loaned all of this money secured by oil drilling equipment and oil properties.  Oil went to $10.00 a barrel.  All of thses people who were going to get rich in oil drilling went broke.  But so did the banks that lent them too much money on the theory that oil prices were going to keep going up forever.  Nope.  Noe one "bailed out" the oil industry then, although I believe there were some (ill advised?) tax breaks given.  Now one really "bailed out" Texas banks either, although the Fed (as it is supposed to) took them over.

Oil is now down almost 50% from its high.  So are many other commodoties (although gold has stayed pretty high, as people turn to it out of fear).  That is probably more than the drop in house prices, except in certain "hot" housing areas.  If this keeps up, we will have some banks going under because of the drop in commodity prices, because they got greedy in making loans in that area.  And it could keep up  Oil demand has already dropped off of a cliff, and this anticipated "worldwide recession" has not even taken hold yet.  Oil could easily go under $50.00.  If it does go that low, there may almost be no bottom.  $30.00?  $20.00?  It depends on how deep the recession is and how much discipline OPEC has under pressure.  History says that OPEC does not hold up under economic pressure.

Yes, housing has a more pervasive impact throughout the economy, and the coutnry.  But the stock market went down further (so far) after the dot.com bubble burst.  Oil has gone down further than housing, in the past.  Have people who lost everything in those "crashes" been "bailed out".  Not usually. 

The point here is that if we avoid too much concentration of economic power and resources, it is not a big problem. We just let the people who make the wrong bets fail.  That is how a fre market works.

But are we lwarning the lesson that decentralization and more competition is good, and too much conentration and central planning is bad.   Not on your life.  We are encouraing the big financisl companies to concentrate even more, and sending the wrong message:  tthat we (the taxpayers) will bail you out if you are too big to fail, but not if you are a local bank in Texas, or some other state.  And we are adopting the idea that central planniing will "save" us, even though it fails every time (and theoretically must fail, eventually, because human beings are not perfect).

Nope.  "Bubbles" are always going to be with us, becuse people are subject to emotion.  Our goal should be to stop big mergers, and otherwise decentralize both our economic and political systems so that the bad decisions of a few people do not sink us all.  We aer doing exactly the opposite, and that is a very bad thing.