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Why the recession is dragging? Is this the real reason:

Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. This concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted. This concept is derived from the Hubbert curve, and has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production. Peak oil is often confused with oil depletion; peak oil is the point of maximum production while depletion refers to a period of falling reserves and supply.
M. King Hubbert created and first used the models behind peak oil in 1956 to accurately predict that United States oil production would peak between 1965 and 1970.[1] His logistic model, now called Hubbert peak theory, and its variants have described with reasonable accuracy the peak and decline of production from oil wells, fields, regions, and countries,[2] and has also proved useful in other limited-resource production-domains. According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical logistic distribution curve (sometimes incorrectly compared to a bell-shaped curve) based on the limits of exploitability and market pressures.
Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew Simmons, believe the high dependence of most modern industrial transport, agricultural, and industrial systems on the relative low cost and high availability of oil will cause the post-peak production decline and possible severe increases in the price of oil to have negative implications for the global economy. Predictions vary greatly as to what exactly these negative effects would be. If political and economic changes only occur in reaction to high prices and shortages rather than in reaction to the threat of a peak, then the degree of economic damage to importing countries will largely depend on how rapidly oil imports decline post-peak.
Optimistic estimations of peak production forecast the global decline will begin by 2020 or later, and assume major investments in alternatives will occur before a crisis, without requiring major changes in the lifestyle of heavily oil-consuming nations. These models show the price of oil at first escalating and then retreating as other types of fuel and energy sources are used.[3] Pessimistic predictions of future oil production operate on the thesis that either the peak has already occurred,[4][5][6][7] that oil production is on the cusp of the peak, or that it will occur shortly.[8][9] The International Energy Agency (IEA) says production of conventional crude oil peaked in 2006.[10][11] As proactive mitigation may no longer be an option, a global depression is predicted, perhaps even initiating a chain reaction of the various feedback mechanisms in the global market that might stimulate a collapse of global industrial civilization, potentially leading to large population declines within a short period. Throughout the first two quarters of 2008, there were signs that a global recession was being made worse by a series of record oil prices.[12]

From: http://en.wikipedia.org/wiki/Peak_oil" onclick="window.open(this.href);return false;
More info: http://www.peakoil.net/" onclick="window.open(this.href);return false;

Beiruty wrote:Why the recession is dragging?

Too much government spending, creating a drag on the private sector recovery.



Also: http://www.thinkgeek.com/homeoffice/posters/af76/

Whole world economy is driven by oil-based energy, when the flow stops, the machine comes to grinding halt, unless mitigation and replacement energy comes to line in-time.

I'd say that the record oil prices of 2008 were not the cause of the recession, but a consequence of what caused the recession. As happened in the '30s, and in countless economic collapses throughout history, those that control a fiat currency print, and print, and print in an attempt to improve the economy by increasing spending. But the result is that the value of currency decreases as its supply increases. On paper (oops, pun) it may seem that things are getting better because the amount of currency that is being spent appears to increase. However, an increase in currency is not indicative of, and certainly does not cause, the creation of more and better goods and services. All it is doing is repricing goods in terms of pennies rather than dollars without changing the names of each.

The consequences of this inflationary action are actually the exact opposite of the claimed intentions of those who commit us to this policy. When the supply of currency increases, its value decreases, that is plainly understood through the same law of supply and demand that applies to all goods and services. The results of this is that those who save money lose because their savings will eventually evaporate. With declining currency value, even if the amount of money you have stays the same, the amount of goods and services you can purchase with it will decline as well. With a dollar today being worth more than a dollar tomorrow, there is no incentive to save. Without saving, there can be no investment in goods or services with long productions cycles since everything is being spent on short term production for immediate (relatively) consumption.

In order to produce new things some resources need to be diverted from present consumption (i.e. making stuff now) and put towards future consumption (i.e. making stuff later). For example, if you own a factory and put 100% of your resources to the assembly line turning out Widget 1.0 (100% of expenses incurred by production), you then have no resources to put towards developing Widget 2.0. In order to one day have Widget 2.0, you must at some point have a surplus of revenue that can be used for things that do not immediately produce Widget 1.0 and put it to R&D for Widget 2.0. To put it simply, in order invent new things you must divert resources to that cause; this process does not produce revenue in the present time. In order to have the resources to put towards activities that do not produce revenue in the present time, you must at some point create a savings of resources by spending less resources on production than you get in return for that production. Therefore, the key to economic success, and general progress and improvement of living standards, is savings. Without savings there are no resources to put towards improvement, so stagnation is the best you can hope for (and really, regression is more likely).

Think of it on a personal level. In order to do things that don't make money for you, like hobbies, vacations, retirement, and education, you have to save some money. If you live paycheck to paycheck there is no surplus of resources for you to divert away from making your living and put towards the things you do that do not generate any income. Education is probably the best example since you generally go to school in order to improve your ability to produce valuable things at a later point in time, such that future ability will enable you to improve your living standards to a greater extent than if you continued in your current work. You give up the minimum wage income for some time in school or some other training so that your income will be significantly larger afterwords, to the point that the income you give up during training is easily recouped and then some.

It is easy to see that any individual, when evaluating their finances (their own personal economy) generally sees it good that savings rise, that expenditures fall in relation to income. Nobody opens their checkbook and proclaims "I've spend twice as much this month as I did last month, great! Onward to the good life!" It is obviously the exact opposite.

"The Economy" is no more than each person doing this same thing (or not). No individual, and no government has been able to spend its way into prosperity.

Beiruty wrote:Whole world economy is driven by oil-based energy, when the flow stops, the machine comes to grinding halt, unless mitigation and replacement energy comes to line in-time.

On the surface, it may appear there's some merit to the argument that higher oil prices are raising the price of everything, thereby causing the drag on the economy. However, on closer inspection, that doesn't seem to be the case. In fact, it wasn't very long ago that some were worried about deflationary effects, despite the "high" price of oil.

One interesting exercise is to plot the price of oil in relation to gold or other hard commodities, to eliminate currency variability.

Certainly I agree with the development of alternative fuels, but that alone will not save us from the economic problems ahead.

First, note that when we say "the economy is dragging" we mean that the total Gross Domestic Product is stagnant or decreasing. At this particular time, Federal government spending accounts for over 12% of the currently measured US GDP. Since US GDP is in the vicinity of where it was before Lehman, that means that private GDP is actually about 12% lower than it was about two years ago (within a few percent). If you include the far-fetched idea that GDP levels need to be sustainable, we have truly never left the recession over the past two years, as the GDP that comes from sustainable spending (i.e., one dollar generates more dollars) has continued to decrease.

Since most new sustainable employment comes from small business, not government, then changes in employment levels go hand-in-hand with private GDP. And, that is shown in the U6 employment figures, where over 17% of the workforce are underemployed (and I just saw today that California is at 23%+); if you include those who gave up and are out of the unemployment counts, it's well over 20%. Those latter people have no income whatsoever.

So, why the decrease in private GDP? Because demand was pulled forward by over-borrowing by individuals, corporations, and governments over the past one or two decades. Now is the day that people have suddenly discovered (many by necessity) that the bills had to be paid back and the loans had to be paid down. Note that a significant part of the (small) decrease in private loans outstanding in the past two years has been due to bankruptcies and foreclosures (which leads into another whole discussion now).

Note that oil prices are still well below where they were a couple years ago, in the $80 range, and are having a tough time maintaining that -- because demand has tremendously decreased. "Peak oil" is real, but even crude cannot overpower the supply/demand curves, especially when people aren't working.

What stresses will happen going forward (and it's truly anyone's guess right now -- and don't ever trust the guesses of the current Administration, because they continue to fail to let the economy take its natural medicine) will probably not be because of high prices (only 1-to-5% of the population have more than enough to spend for the foreseeable future), but because the government will suddenly find that the bills have to be paid -- and thus another drain out of citizens' pockets.

Sorry for the essay. Guess I did it again....

As for fiscal discipline the Federal Government cannot sustain collecting 20% of GDP and spending 30% of GDP per year, year over year. Collecting $3T/yr and spending $4.5T/yr is just not good finance. $1.4T for 120m households, 50% of households do not pay Federal taxes, your would left with $1.4T of new debt for 60m household tax payers. That is some $22,000 of new debt per house hold per year.

Worse, the Federal Reserve already bought $4.5T in foreclosed houses and bad financial loans. In addition, they are just pumping additional $0.6T in QE2. What I am afraid, that there will be no more state bail out and waves of state budget cuts will lead to massive lay off for state public sector employees, that safest employment out there. Texas alone has to cut some $18B-$25B over the next 2 yrs. Budget cuts means, less services, less spending, less employment.

from this source, http://www.cbpp.org/cms/?fa=view&id=711" onclick="window.open(this.href);return false;, 850,000 jobs are expected to be reduced by the states per year for the next couple years.

The reason oil prices are going up is because the oil producing states are decoupling oil sales from the US dollar. The US dollar used to be the world's reserve currency (before that it was the British pound sterling), but our debt is so enormous that the dollar decreases in value constantly (8% this year alone.) As the dollar decreases in value, there is more and more pressure (and justification) to base oil sales on some other currency. Look for oil prices to at least double and possibly triple (or more) in the next 12 to 18 months. The days of $3.00/gallon gas will soon feel nostalgic.

baldeagle wrote: Look for oil prices to at least double and possibly triple (or more) in the next 12 to 18 months. The days of $3.00/gallon gas will soon feel nostalgic.

Then the commodities speculators will flood the futures trading markets with call orders, pushing the crude prices higher and higher, creating a self-fulfilling prediction of higher oil and gasoline prices.

Many (if not most) commodities are tracking this same trajectory.

Real reason for Recession? Is the EV the solution?

No.

Business cycles are the norm, not the exception. The efforts of the government and the Fed to "help" the economy often backfire. In the current environment, the Fed is going through quantitative easing through its permanent open market operations (POMO). It is essentially buying US debt by printing dollars. The aim is to "reflate" assets and basically unwind the real estate trade in the US which is severely under water. By printing money, the FED hopes we all feel richer as our stock holdings go up and that it translates into consumers spending more and stimulating the economy. So far it really isn't working. All the quantitative easing has done is monetize our debt and devalue our currency. A cheaper currency means higher commodity prices and higher stock prices, but not because of demand or robust economic activity - because of cheaper dollars. All the while, our country's spending and debt has sky rocketed, and the expected stimulus to the economy has not materialized.

Check out http://www.zerohedge.com" onclick="window.open(this.href);return false; for daily commentary on the topic.

silverbear wrote:Real reason for Recession? Is the EV the solution?

No.

Business cycles are the norm, not the exception. The efforts of the government and the Fed to "help" the economy often backfire. In the current environment, the Fed is going through quantitative easing through its permanent open market operations (POMO). It is essentially buying US debt by printing dollars. The aim is to "reflate" assets and basically unwind the real estate trade in the US which is severely under water. By printing money, the FED hopes we all feel richer as our stock holdings go up and that it translates into consumers spending more and stimulating the economy. So far it really isn't working. All the quantitative easing has done is monetize our debt and devalue our currency. A cheaper currency means higher commodity prices and higher stock prices, but not because of demand or robust economic activity - because of cheaper dollars. All the while, our country's spending and debt has sky rocketed, and the expected stimulus to the economy has not materialized.

Check out http://www.zerohedge.com" onclick="window.open(this.href);return false; for daily commentary on the topic.

Good information there, just be sure to keep an open mind and use a profanity filter....

Three points about the increase in commodities:
1) Much of the commodities increase is due to the intentional dollar devaluation (every nation is "racing to the bottom" to try to increase their exports compared to everyone else -- the dollar is losing/will lose that race).
2) The economic blowout/up in China is creating "demand" that is pushing commodities futures -- that doesn't mean those futures will hold when China hits the wall.
3) "The Market is King" (no matter which market is the topic -- just ask about how the EU has tried to control European bonds). No matter how much Fed money is printed, it's going to the "wrong" people in terms of building the economy (a bunch of it is going overseas, as well). If regular people can't/won't pay increased prices (and we're seeing that now), the commodities prices cannot be passed along (just ask about "margin compression" with retailers -- those screams you're hearing this month aren't from buyers, they're from retailers).