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Sunday, June 09, 2013

The Oil Choke Collar

Our dependence upon fossil fuels—oil in particular— has created what some call the “Oil Choke Collar.” This means that when oil prices go up, the economy starts to slow. If oil prices go high enough to turn growth into contraction, the economy keels over into recession. We saw this in 2008 as oil hit $145/bbl briefly. Oil dropped to $36/bbl and growth revived. This was not a coincidence. Oil prices were the biggest factor in that recession.

For a graph illustrating the Oil Choke Collar, read The Oil choke collar in one easy graph.

In recent months, oil has been gyrating in a fairly narrow range. But, it has been a high range, which explains why the economy has not been able to mount a typical recovery from recession and a reason why jobs have been scarce.

It's not just the Americas and Europe where high oil prices have been impeding recovery. Gail Tverberg writes that High Oil Prices are Starting to Affect China and India.

What will eliminate the Oil Choke Collar? It's very simple: we must eliminate our addiction to fossil fuels as fast as possible. New alternatives which are non-polluting are known. All we need to do is to get them to market as fast as possible and we'll see the Oil Choke Collar eliminated.