Thursday, March 6, 2008

Foreclosures and international oil prices: a definite (negative) correlation

Well, it's getting ugly. This inflationary stagflation has a self-reinforcing cycle, the kind you describe on essay questions for SAT's. Today (March 6), the crude oil futures make a hedge against the falling dollar, and that drives up the price of crude oil further.

And what drove the dollar down? Everybody is saying it's the foreclosures. Today, for the first time in history, Americans owe more on their homes than they are worth (that is, their total mortgage debt exceeds their total equity, for the first time in history).

The underlying problem, so well described by Lou Dobbs and Jack Cafferty in their recent books, is that creation of "real wealth" -- content-oriented work -- has tending to shift overseas. Americans have gotten used to depending on cheaper labor, and they has caught up with the consumer. Jobs have been created for a while by manipulating demand, a huckster-driven culture that helped create the subprime mess.

The other problem is the cost of the War in Iraq (much more so than Afghanistan), the burdens of which have not been born equitably (look at the backdoor draft). When citizens do not share burdens equitably, the economy tanks.

The best story that I could find on the international aspects of the foreclosure crisis was this one today on CNBC: "Oil Ends at Record Above $105 on Weak Dollar," link here. Adding to all of this is political instability in Venezuela and Nigeria, and looming threats in all of the Middle East.

Here is the AP story on the total equity v debt problem, by J. W. Elphinstone, "Low Home Equity, Record-High Foreclosures: a Limp Housing Market Looks Even Weaker," link here.

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