Oil and other commodity prices have recently been dropping. Is this good news, or bad?
Figure 1. Trend in Commodity Prices since January 2011. Brent spot oil price from EIA; Australian Coal from World Bank Prink Sheet; Food from UN’s FAO.
I would argue that falling commodity prices are bad news. It likely means that the debt bubble which has been holding up the world economy for a very long–since World War II, at least–is failing to expand sufficiently. If the debt bubble collapses, we will be in huge difficulty.
Many people have the impression that falling oil prices mean that the cost of production is falling, and thus that the feared “peak oil” is far in the distance. This is not the correct interpretation, especially when many types of commodities are decreasing in price at the same time. When prices are set in a world market, the big…
View original post 3,414 more words