Saturday, January 1, 2011

Balloon Economy

(Rubber/Fabric=Economy, Air=Credit, Pump=Oil)
The more hot air one blows into a balloon, the more the balloon expands.
The air pressure stretches the rubber thinner and thinner as the balloon grows larger. It expands to the point where the molecular structure of the rubber (or some other fabric) can no longer bear the pressure of the expanding gas. The molecules then break apart rapidly, all at once, in the form of a BANG! or in other cases, the ballon springs a leak which then requires you to pump more air into it in order to offset the loss escaping at the point of rupture. At some point, the energy required to pump an equal or greater amount of gaseous pressure into the balloon, becomes so great that the machinery pumping the air begins to break down…and at that point, the balloon then begins to lose pressure, and deflate at a calculable rate.
The expansion of western economies (not the selling of spurs and saddle soap)
relies on the "air" known as credit, blown into the balloon using a pumping
That ball is up, UP, and AWAAAYYY!
energy known as "Oil" to fuel the infrastructure necessary for the expansion to occur. Although we have alternative fuel (energy) sources, none of them come close, in energetic output, to oil based petroleum.
When the price of Oil spiked at 147$ a barrel in the summer of 2008, the 'credit balloon' had expanded as much as it was capable of expanding,and was already in an advanced stage of decline. As Oil prices began to then slip away, investors started a massive selloff which led to the stock market crash in September 2008.
The long period of sustained 100$ plus, per barrel of oil had taxed the systems capacity to maintain certain profit margins, to the point of implosion.
Every institution that relied on interest (Banks, and other lenders of money) were hit the hardest, with many large dependant corporations slouching along in their shadow.
We know the economic crash of '08 was a direct result of a mortgage housing bubble in the U.S. which began in 2007. The housing bubble burst when the economic expansion necessary to keep the bubble expanding started to slow due to higher prices in the fuel that allows this 'balloon expansion' to happen, oil. After the crash of '08, stimulus packages around the world, and in the U.S. known as bailout money (TARP), were introduced. Combined with slashed interest rates, the major banks were able to salvage the markets, and return a sense of normalcy to the economy. This 'recovery' was able to take place for one reason only: Oil prices had plummeted into the mid-thirties per barrel.
Had Oil remained above 100$ a barrel, Banks would have needed three to four times the amount of 'bailout' money (taxpayer money) in order to keep their 'Ponzi scheme' of "interest on manufactured credit" going.
Now as economic expansion begins to slow once more, and Oil creeps back up above 90$ a barrel, Banks are once again printing up money out of thin air, which in turn can only make the price of Oil (and other commodities) climb, once again eating into the profit margins.
So, here we are again, on January 1st 2011, with the economic horizon looking a bit like the changeling child of January '08. Considering the damage we have suffered over the last few years, it wont take much to prick this balloon economy, and send it sputtering aimlessly, as the price of Oil's getting sharper by the day.
Dirty CT January 1st, 2011

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