Shovel ready

[SteelTown]

Looks like the feds will start to parading around the province announcing what will get funded with the stimulus money soon.

I'm going to guess we'll get around $120-170 million worth of stimulus money.

[realcity]

You know what's effedup?

Harper was criticized early on in the recession for not spending money.... basically for not having a stimulus package. After Canadians had a vocabulary from George Bush then Obama, what was formerly called by Bob Rae, 'spend your way out of a recession' is now called a much better 'stimulus'.

Now Harper made a massive deficit for stimulus spending and the same critics are now saying that he's spending too much money.

I'm not a huge fan of Harper, I'm just saying, get your play right. Now that the recession has bottomed out without the stimulus spending, when that hits we might be looking at massive inflation.

[BrianE]

Much of the outrage to the $50 Billion deficit it not being communicated very well I think. We all knew the Feds were going into the red this year and we knew money earmarked for stimulus spending was going to be ~$35 Billion. But what's the deal with the extra $15 Billion on top of that, Flaherty and crew don't seem to be dealing with that portion of the deficit very well.

It would be nice if Ignatieff and company would clarify their outrage a bit instead of looking like fools going on about $50 Billion when we all know they would be spending at least $35 Bills themselves if they were in power.

[drpgq]

Originally Posted by BrianE

Much of the outrage to the $50 Billion deficit it not being communicated very well I think. We all knew the Feds were going into the red this year and we knew money earmarked for stimulus spending was going to be ~$35 Billion. But what's the deal with the extra $15 Billion on top of that, Flaherty and crew don't seem to be dealing with that portion of the deficit very well.

It would be nice if Ignatieff and company would clarify their outrage a bit instead of looking like fools going on about $50 Billion when we all know they would be spending at least $35 Bills themselves if they were in power.

Isn't part of the $15 billion to do with increased costs for the auto bailouts?

Actually the federal government deficits don't concern me that much. With oil rocketing up again, they will disappear faster than predicted. I am very concerned about Ontario's deficit. A higher dollar won't help Ontario at all, plus higher gas prices will gouge the sprawlers, leading to a very feeble economy and pathetic tax revenues.

[adam]

Gas prices may have gone up, but consumption has gone down.

[drpgq]

Originally Posted by adam

Gas prices may have gone up, but consumption has gone down.

Source?

[adam]

Consumption has decreased. Consider:

Products are not being produced or consumed at the rate they were. If they aren't being consumed or produced, they aren't being shipped at the rate they were previously. This includes freighters from China, etc.

Also companies are shutting down so there are fewer corporate trucks/vehicles on the road. Unemployment rates are going up - so there are fewer commuters on the road.

Sorry I don't have time to cite or source these things. But let me know if I've overlooked something.

[drpgq]

Originally Posted by adam

Consumption has decreased. Consider:

Products are not being produced or consumed at the rate they were. If they aren't being consumed or produced, they aren't being shipped at the rate they were previously. This includes freighters from China, etc.

Also companies are shutting down so there are fewer corporate trucks/vehicles on the road. Unemployment rates are going up - so there are fewer commuters on the road.

Sorry I don't have time to cite or source these things. But let me know if I've overlooked something.

I read somewhere (unfortunately I can't remember, I'll have to hunt for it) that the number of miles driven in the US is only down a measly 1% year over year. Since oil in North America is mainly for personal vehicle use compared to natural gas or coal for industrial uses (and natural gas prices are in the toilet), it is a reasonable bet oil is going higher. And so the commuters in Ontario will suffer. Especially next year when the PST kicks in on gas.

[ryan_mcgreal]

Originally Posted by drpgq

I read somewhere (unfortunately I can't remember, I'll have to hunt for it) that the number of miles driven in the US is only down a measly 1% year over year.

The distance driven dropped 5% from 2007 to 2008, and is down again slightly in 2009, despite the relative respite in fuel prices.

Of note, however: despite the sharpest, deepest global recession since the Great Depression, oil is still trading around $60/barrel. When all the bajillions of dollars in Keynesian counter-cyclical spending kick in and the economy recovers, oil prices will skyrocket again. I wouldn't be surprised to see oil hit $200 by the peak of the next price swing.

Incidentally, the absolute best thing we could do across North America would be to impose a fairly stiff gas tax. This may sound counter-intuitive, but please read on:

High, volatile oil prices are bad for everybody: bad for consumers (personal and corporate) because it's difficult to budget for fuel expenses when the price swings 150% over a six month period; bad for producers because they can't get the stable demand necessary to justify investing in expensive, non-conventional sources; and bad for the economy as a whole by fomenting instability in secondary and tertiary industries.

High, stable prices are much better. A tax accomplishes several things at once:

1. When tax is a bigger share of the total price of fuel, swings in the price of oil have a smaller impact on the overall price.

2. When consumers come to expect a reasonably stable high price, they're more willing to adjust spending decisions to take those prices into account.

3. It's long been understood by economists that high energy prices drive innovation in fuel efficiency that more than offset the higher cost. For example, Europeans pay double what North Americans pay for fuel, but drive about as much as North Americans do (17,000 km/year in Europe to 18,000 km/year in North America) while consuming only half as much energy per capita. It's no coincidence that the best-performing cars and the most consistently profitable car companies in the world have their home bases in countries with very high fuel prices.

4. Over time, high prices push the economy as a whole toward reduced reliance on oil, which means volatile swings in the oil price and even supply disruptions have less capacity to disrupt economic activity.

The auto industry understands this. In recent months we've had the CEO and Chairman of Ford Motor Company both point out that the price of gas in the US has to double so that the auto companies can make a living selling small cars.

[FairHamilton]

Originally Posted by drpgq

I read somewhere (unfortunately I can't remember, I'll have to hunt for it) that the number of miles driven in the US is only down a measly 1% year over year. Since oil in North America is mainly for personal vehicle use compared to natural gas or coal for industrial uses (and natural gas prices are in the toilet), it is a reasonable bet oil is going higher. And so the commuters in Ontario will suffer. Especially next year when the PST kicks in on gas.

From February 2009; http://money.cnn.com/2009/02/19/auto...ion=2009021906.

Also, note that decrease was still continuing even though the price of gas was well off it's 2008 highs.

[drpgq]

Originally Posted by FairHamilton

From February 2009; http://money.cnn.com/2009/02/19/auto...ion=2009021906.

Also, note that decrease was still continuing even though the price of gas was well off it's 2008 highs.

Thanks for that info. Although in my defence:

Driving Season in U.S. May Beat Forecasts, IEA Says (Update1)
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By Ben Sharples

June 1 (Bloomberg) -- Fuel demand during the U.S. summer driving season may prove stronger than projected as consumers recover from the shock of the global financial crisis, an International Energy Agency official said.

“It wouldn’t surprise me if it was a better driving season than some people have forecast,” IEA Deputy Executive Director Richard Jones told reporters at the Australian Petroleum Production and Exploration Association conference today.

The peak U.S. gasoline consumption period lasts from the Memorial Day holiday until Labor Day in early September, as Americans take to the highways for vacations. New York benchmark oil rose beyond $67 today for the first time since November, as China’s manufacturing expanded for a third month and the nation raised fuel prices.

“People are getting over the shock of the economic data, the financial crisis and the recession, and you are starting to see what are still anecdotal reports I think more than anything else of these so-called green shoots,” Jones said at the conference in Darwin. “It’s changing attitudes in the market -- I think that’s what it is.”

U.S. Federal Reserve Chairman Ben S. Bernanke used the term “green shoots” in March to describe positive signals he saw in some financial markets.

[drpgq]

I checked the DOT website and the last info they have for March is -1.2% (year over year), which isn't far off from 1%. Which is interesting considering the state of the US economy.

[markbarbera]

The price of oil is higher than expected during this recession for the same reason gold is, and it has more to do with the US dollar than supply/demand issues. The financial crisis in the US has led to an unprecedented move away from the US dollar on the currency market. Jittery investors are looking for safe havens for their funds, and are moving their US dollars into commodity markets, thereby driving up the price of oil and gold, as well as the value of the currencies of commodity-based economies like the Canadian dollar.

Once the US economy is firmly in recovery (or more specifically, once the banking sector has overcome its crisis), confidence in the American dollar will return, and investment will shift back from commodities to the US dollar, bringing some relief to the price of oil and gold. Consequently, while there will be some upward pressure on the price of oil as a result of increased demand, it will be offset by this shift out of commodities and back into the greenback.Given these conditions, oil will climb upwards, but it certainly won't skyrocket.

[ryan_mcgreal]

Originally Posted by markbarbera

Given these conditions, oil will climb upwards, but it certainly won't skyrocket.

You're ignoring what happens when demand returns to the level it hit in mid-2008 (~86 mbpd) and the global oil infrastructure cannot step up to supply what the market demands. The marginal cost to produce an additional barrel of oil beyond the industry's peak production rate will explode and the price will skyrocket again in the next cycle of peak oil's bumpy plateau.

As tempting as it is to blame last summer's high prices on speculators, the evidence does not bear that hypothesis out.

If speculators were bidding up the futures price beyond straight market demand, suppliers would sit on inventory and wait to sell it later at higher prices. However, inventories did not increase during the 2008 run-up in oil prices.

[adam]

Its quaint to think that oil and gold prices are determined by supply and demand.

[ryan_mcgreal]

Originally Posted by adam

Its quaint to think that oil and gold prices are determined by supply and demand.

OPEC is basically powerless to fix prices and has been for nearly 30 years. The publicly traded oil companies, much as they benefited from windfall profits over the past few years, have to take the good with the bad and make very slim profit margins even when prices are high.

Kindly note that oil traded around $15/barrel through the late 1990s. If the oil industry can fix prices, why did they let prices languish so low for so many years that they could barely break even and couldn't afford to invest in new production capacity?

On the other hand, the price of oil has risen steadily over the past decade as demand has steadily crowded closer and closer to the peak production rate of around 85 mbpd and capacity cushions (particularly in Saudi Arabia) have evaporated.

Allowing for seasonal fluctuation (higher prices during the "summer driving season" and temporary supply shortages during hurricane season), the price of oil has very closely tracked the balance of supply and demand over the past decade.

Edit: to re-word the unpleasantly-written second paragraph (thanks, highwater, for making me see the light!).

[highwater]

Originally Posted by ryan_mcgreal

If you dispute this, please explain why...

Nooooo! You've been arguing with A Smith for so long, you've picked up his unpleasant habit of rhetorically demanding explanations from people. Please return to your usual generous, yet professorial style.

[adam]

no he's right. i should be able to back up my claims... but i don't have the time to do the fact checking... so i'm just going to keep my mouth shut. take care guys!

[ryan_mcgreal]

Originally Posted by highwater

Nooooo! You've been arguing with A Smith for so long, you've picked up his unpleasant habit of rhetorically demanding explanations from people.

Yikes! I'll have to watch for that (and adam, please accept my apologies if a rude tone came across - it wasn't my intention).

In my defence, the question wasn't rhetorical. There may be a perfectly good reason for the low oil price through the latter 1990s that is consistent with the hypothesis that oil price is not mainly a function of supply and demand. I do try to be willing to change my mind when the facts change.

[adam]

No need to apologize, your response was informative and thought provoking.