A year ago, oil was around $100 per barrel, and now it is about $30. This is a drop of 70%! I bought gas for $1.45 last week, and a year ago, $4 was the norm. Is this good for America? Why did it happen? Is it being manipulated? The reason it dropped is not difficult to tell, because it has to do with 'supply and demand.' Fracking did it. When oil producers discovered they could get unheard of amounts of oil and natural gas by doing what we call 'fracking.' I won't go into details about the process, but oil and gas has been found in places and amounts never before dreamed of, and this has flooded the market with gas and oil. Not manipulation, but there is so much of it that markets are saturated. I believe the current price of about $30 per barrel will remain, and gasoline and diesel will remain cheap. Is this good? It's good for you and I who fill our tanks, and it's good for the airlines and truckers, because their cost of operations are lower. Are there disadvantages? You bet!
Look at what has happened to the stock market, which has taken a literal bath since January 1st, and in 2015, it was a loser. Why? Because with cheap oil, Exxon, Mobile, etc. profits go down, and tens of thousands have been laid off. Oil stocks suffer and are way down. Caterpillar is down 40%, Norfolk Southern's profits are down 30%, Oil trains are carrying half of what they used to carry, because there is no demand for oil. Railroaders are being laid off by the literally tens of thousands. With natural gas cheap, Obama's war on coal has hit the jackpot. Tens, if not a hundred thousand or more miners are laid off, and coal fired power plants have switched to natural gas. Railroads which carried millions of tons of coal, are idle. Union Pacific has over a hundred diesel locomotives stored dead in the Grand Junction Colorado yard. This is an indication of railroad's decreased business. Union Pacific stock, is now under $70, and was $120 a few short months ago. With the layoffs everywhere, idle workers have no money to buy things, and retail stores suffer. Walmart is closing stores, and Macy's has problems after a bad holiday season, and is closing stores. Locally, my friend David, who owns my town's best jewelry store, had a bad holiday season. He has no debts, and that helps. One of Colorado's largest coal producers is in the area of Paonia Colorado. A couple of years ago, three 100 car plus 'unit' trains of coal left there every day, and now it may be one every other day. Hundreds of miners have lost their jobs, and of course their purchasing power, and the same things is going on all over America.
China's economy is slumping, and I am sure their figure of a 6.5% decrease is a bald faced lie. I think it is far worse than they say, and the evidence is their stock prices. China's factories and steel mills are closing almost daily. Why? Because the world is probably in the beginning of a depression, with millions unemployed, and those without work cannot buy, and the process feeds on itself. In the 'Great Depression' of the late 1920's and 1930's, the stock market crashed and millions went bankrupt. Banks were loaning huge sums on stocks, with no other security, and the stock market plunged so much that brokers were jumping out of windows. Banks went bust, and millions of businesses did the same. My parents lost their money in a bank which never reopened. There was no FDIC then. The stock market crash spread gloom, doom, unemployment, bankruptcies, factory closings, throughout the entire economy, in a way, just like the oil crash has had the same effect today.
As a classic example of how bad the economy is, look at e-bay. I have bought a lot of stuff on e-bay and 20 years ago, sold a lot of stuff. I checked on some of my favorite sites, and e-bay is dead. When it says 'buy it now,' you don't know whether the item has been sold or not, but when it is up for bids as is usual for e-bay, 90% of the items say '0 bids.' My dentist says that his business is off and people just do not come in for regular checkups like they should, but wait till they have a problem. A heating-air conditioning contractor client of mine says that his business is lax because spring checkups, and fall checkups are not ordered, as they should be. No, they wait till they have no heat or no air. I have checked antique stores, and they are hurting. Goodwill and Salvation Army are taking in more than they can sell, and much goes to the dump.
Auto sales last year were excellent I know, but no other sales were good. Jobs are difficult to find at any salary. The difference between now and the Great Depression, is that now Americans have unemployment benefits and welfare schemes. There were none during the Great Depression. If you have lost your job, you can probably live for as long as a couple of years, and collect a bare living subsidy. There are no soup kitchens and men selling apples on street corners for a nickel, like before. There was not a single industry which was not harmed by the Great Depression, and there is not a single industry or business which is not harmed by the 70% decline in oil, and natural gas. When self service elevators replaced elevator operators, diesel locomotives replaced steam locomotives, automation replaced some factory workers, China, Japan, and Mexico took away American jobs, computers replaced office workers, the internet hurt the postal service, etc, all cost millions of jobs, but it was not 'overnight,' as the market crash brought on the Great Depression 85 years ago. The oil price crash has happened within many months, not overnight.
Is there about to be an economic collapse? Some think so, but I doubt it. Various governments will continue to print and hand out benefits and various forms of welfare. The future doesn't look bright, but not dismal, at least in my opinion. Gold and silver have been real money for thousands of years, and will continue to be so. As consumer prices go up, thanks to inflation, gold and silver will go up too, and be a 'hedge' against economic collapse, depression, or whatever governments may create. If we had free markets which were not meddled with, and legislated against by big government, executive orders, Federal Reserve, and outrageous taxes, even cheap oil's effect would be much more gradual than it has been so far.