Friday, December 5, 2014

CHEAP OIL A BLESSING OR THE FINAL STRAW

Us peasants are rejoicing over cheap gasoline and going about our merry way thinking now I know where the money for Christmas is going to come from..Very true, those with much of a commute have a lot more bucks in our pocket.  Seldom does it cross their minds that this fall in oil is a bad thing but the truth is it could be.

Oil companies buy derivatives to protect against falling prices , so they buy derivatives to guarantee the future price of their oil  so they really don't care if the price of oil falls.  They are protected  , so the question is who eats the losses... In this case the big six banks and they hold enough of these contracts to force them into default and if that should happen the whole system goes down.

HERE'S THE STORY

1 comment:

  1. Whoa. If you don't know what the derivatives market is, you need to read the attached story. I recall the derivatives market (a banking/betting market outside of our regular banks and banking regulations) is approximately six times the size of the world's currency.(Tiger please chime in if my estimate is too far off.)

    So when this market goes bad and the house(banks) have to make good on the bets and pay off the oil companies bets (derivatives) it will all comes tumbling down. Even if the banks want to rob the citizens(bank robbery : ) like in 2009, the money just isn't there any more. Wild times just around the corner.

    Thanks for the article.
    ~Heidi

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