Economists Wary of Falling Energy Prices

[NVMojo]

WASHINGTON (AP) -

It should only be this simple: Oil prices plunge 20 percent, leading businesses and consumers to ramp up their spending, which gives a nice jolt to the economy. That seems to be the conventional wisdom on Wall Street right now, where the pullback in energy prices is being cheered by investors. But some contrarians think that view could be missing the point.

While the decline in prices will provide some relief to motorists, it also reflects the country's weakening economic outlook. In other words, any benefit from falling pump prices may be outweighed by higher interest rates and a stagnating real-estate market.

Moreover, the economy did not crater in the face of soaring fuel prices - because energy costs are only a small portion of the average U.S. household budget - so why should the reverse be true?

"Lower oil prices don't mean that the economy is going to improve," said David Resler, chief economist at Nomura Securities in New York.

more...

http://www.lasvegassun.com/sunbin/stories/invest-corp/2006/sep/19/091907677.html

[Totallybushed]

1. Another

example of why economics is considered 'the dismal science'. Falling gas prices = GOOD NEWS.

[VegasWolf]

2. IMO, he is correct. The only real changes have been prices in the

commodities and equities markets. The only thing supporting the economy the last 6 years has been the national income from all the various activities related to the housing market. Now that is gone, and now that we have outsourced a large chunk of our manufacturing base, and our deficit is 9 trillion dollars, we are pretty much hosed. FReepers keep waiting, waiting, waiting for the economy to improve, but it won't. Some people still think the US is the richest nation on the planet when in fact we are the largest debtor on the planet.

[teryang]

3. Falling prices of energy only provide relief till property tax bills...

...come due. There is a lag. Appraisals have been assessed based upon price history not current values which are dropping due to lack of liquidity. Local governments are crowing about the increase in size of their tax base. It is a paper increase only but tax payers are going to have to cough up the extra cash.

There is a movement by commercial builders and developers to shift this burden even more to residential owners. This real estate collapse is just getting started. Just at the time you need the extra discretionary cash the most, after Christmas, oil prices will go back up.

Bushco is about predatory economics, they are out to get every last penny we have.

[VegasWolf]

5. Bush has the Penny Theory of Economics, he wants every penny you have. nt

[NVMojo]

6. good point, with dropping values of existing homes, owners will be

screaming when the tax man hits!!

[Miss Chybil]

4. No, lower prices only mean an election is around the corner.

The incumbents don't want to look so bad.