property, stocks no crash at all, page-5

yellowcake...

Their is some truth in what you say, but there is also a positive side to current oil prices...believe it or not.

Many first world economies have enjoyed rapid growth in recent years. This is partly due to cyclical factors, but is also due to the events of 911 and the new low interest rate environment that has resulted.

In terms of debt affordability, we are living through one of the best fiscal periods on record...this is no more evident than in the rapid rise in value of property market's across the globe.

The increase of cheap money has basically fuelled a wealth bubble on the back of propped up property prices...this in turn has lead to a massive spending spree on "feel good" items such as cars, holidays, white goods, you name it.

The result is a very busy economy, with relatively low unemployment and more and more people in a position to borrow money to buy property...and so the cycle continues.

The relatively quick rise in property values, mostly on the back of increased debt levels, poses a real problem for the world economy and if mismanaged, could cause major deflationary pressures going forward.

In steps the oil crises and the apparently ever increasing prices to save the day?

High oil prices, in an economic sense, have the same slowing effects on the economy as higher interest rates...if not for such high prices, in my opinion, we would be looking at another 1 or 2% on current rates.

Also...higher oil prices lead to a higher tax inflow to the government, the same cannot be said for higher interest rates. The more taxes a government pulls in during such times, the more money that can be made available for "infrastructure" projects when the economy finds itself on the other side of the current boom conditions.

This may be an oversimplification, but it does outline some of the driving forces behind the current situation.

The real problem will develop when interest rates finally have to rise a notch or two...this will happen...and oil maintains current prices, or even rises further.

At this point, the world economy might need to pull a rabbit out of its hat.

Cheers!