What Are The Odds In 2015: Inflation Or Deflation?

TMO ^ | 11-13-2014 | TCE

[blam]

The Cultural Economist
Nov 13, 2014

TCE ( The Cultural Economist) writes: Like other Central Banks, the U. S. Federal Reserve has “printed” copious quantities of money. Despite better GDP numbers and positive media commentary, much of the American economy continues to be lethargic. The Eurozone appears increasingly vulnerable to recession. Financial and geopolitical risks could derail economic growth. What are the long term trends that will shape the outcome?

The Case for Inflation

Oil

As I have documented several times, the rate of inflation is sensitive to the price we pay for a barrel of oil. Political turmoil in Iraq, Iran and North Africa threatens to decrease potential production. New discoveries are not keeping up with consumption. However, a combination of sluggish world demand, increased American production, and Saudi production strategy, has temporarily depressed oil prices.

There is a fundamental economic problem with fracking. It is capital intensive per barrel of oil produced because even “good” wells deplete very quickly. Depletion rates can exceed 70% in the first year and economic well life can be less than 5 years. That means oil exploration and production companies must recover well capital costs over a relatively short period of time. After accounting for the costs of well production and company operations, it will be a struggle – at current oil prices – for many companies to generate enough cash flow from future production to pay off accumulated debt.

Lower oil prices have also savaged the profitability of oil sands production. According to the International Energy Agency, about 25 percent of the synthetic crude produced from the sands is no longer profitable at $80 per barrel.

(snip)

[sanjuanbob]

“D”

[Pearls Before Swine]

Deflation first, then considerable inflation later, a few years down the road.

[BCW]

I am hoping for impeachment and arrest for the while Obama Administration...current and past...

[PGR88]

commodities and gold are indicating deflation

[The_Media_never_lie]

You are so right. Re: #5

[spokeshave]

Stagflation.

[CincyRichieRich]

It’s mixed - and, I love discussions like this - as food, will be up, but it is NOT counted.

It is sad the sands development will suffer, as it is certainly a great industry, as is fracking. But, I’d rather have cheap gas. The reason for the cheap gas isn’t so much over supply as much as it is lack of demand world-wide...that is not a good thing.

I am not fence sitting, but food is under inflation, perhaps gas /petro deflation.

[Arlis]

I’ve said this for some time. What is unique about our present time is we have both strong deflationary pressures and strong inflationary pressures.

For now, they are holding each other in check.

Within 2 years I believe, one or the other will win. Everyone, especially government, fears deflation far more than inflation. Deflation cannot be influenced, and is universally disastrous except for those who hold cash. Inflation, but not hyperinflation, can be controlled to a point, and affected by central bank decisions.

Deflation jumps borders, inflation does not.

It’s almost impossible to plan for both.

[familyop]

"According to the International Energy Agency, about 25 percent of the synthetic crude produced from the sands is no longer profitable at $80 per barrel."

"25 percent?" Interesting. So most oil sands production will continue, even with low oil prices.

[familyop]

Agreed with the author on oil. Production is being throttled or shut down where unprofitable, and prices will rise again, maybe sometime next year.

[Democrat_media]

deflation