The price of oil surged past $100 per barrel shortly after the market opened on Wednesday, marking a remarkable 26 percent increase in less than two months. What’s driving this sudden spike?
According to the Associated Press, the recent Labor Department report revealed that consumer prices dropped from 3.9 percent to 3.5 percent in October. This decrease allegedly prompted oil prices to rise above the $100 threshold for the first time since July. However, the connection between these figures isn’t entirely clear to us at the Economic Prism.
It seems the AP may be suggesting that lower consumer prices could lead to increased consumer spending. This, they argue, would stimulate the economy, create higher demand for oil, and consequently drive up prices. However, this interpretation is speculative as the author did not provide any additional context.
Perhaps they were attempting to indicate that $100 oil signifies an imminent increase in demand juxtaposed with a constrained supply. Still, this only tells part of the story…
How to Celebrate $15 Trillion Government Debt
Another perspective on $100 oil is that it reflects the limitless supply of digital currency clashing with a finite capacity for production. Regardless, the economy has repeatedly demonstrated that it struggles to sustain $100-a-barrel oil for extended periods.
In the previous instances when oil prices crossed the $100 mark, the economy faltered, causing oil prices to drop again. We may have to wait to see if history repeats itself, as by yesterday afternoon, oil prices had receded to $98.
Wednesday’s milestones did not end with oil prices. The Treasury Department also announced that the U.S. national debt has surpassed $15 trillion, equating to nearly $48,000 for every citizen.
In recognition of this staggering figure, Congress approved a spending bill that allows the government to continue its expenditures even as current funding runs out this Saturday. At the same time, the Congressional “super committee” is determined to keep borrowing against the future, with a deadline set for next Wednesday evening to devise a plan to cut the deficit by $1.2 trillion over the next decade. The likelihood of meeting this deadline appears slim.
Congressional Super Committee Farce
Without a doubt, $1.2 trillion is an astronomical sum, difficult to fully appreciate. However, let’s put this into perspective to grasp the current state of Congress.
This year’s deficit stands at $1.3 trillion, which means the government will spend $1.3 trillion more than it collects in tax revenue. If we project that over the next decade, it results in $13 trillion in new debt. Consequently, by 2021, the national debt could swell to $28 trillion.
In essence, the task before the Congressional super committee is to reduce deficit spending by $1.2 trillion over the next ten years, averaging $120 billion per year. Even if they succeed—an outcome that seems unlikely—the U.S. government would still face annual deficits of $1.18 trillion.
In simpler terms, if the super committee achieves its aim, rather than amassing an additional $13 trillion in debt over the next decade, the total increase would be limited to $11.8 trillion. Thus, by 2021, assuming all other factors remain constant, the national debt would reach approximately $26.8 trillion instead of $28 trillion.
This underscores the reality that the Congressional super committee is little more than a farce.
Sincerely,
MN Gordon
for Economic Prism
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