Why High Oil Prices will Make the Next Debt Crisis Even Worse

Monday, August 8, 2011
By Paul Martin

by Gail Tverberg
OilPrice.com

Most people assume that the mismatch between US federal government revenue and expenses will go away, with enough time. All that is needed is a little “patch” now, and some more time, in order for the mismatch to disappear.

I don’t think the mismatch can be made to go away, partly because the mismatch between government revenue and expense is far worse than most realize. Furthermore, high oil prices seem to lead to recession, making it more difficult to fix the gap between government revenue and expenses.

There is good reason to believe that oil production will not increase materially in the next few years. With oil demand from China and India continuing to increase, the mismatch between oil supply and demand can be expected to get worse with time, leading to more recession, and a greater gap between US federal government revenue and expenses.

Because of these issues, about all recent debt limit agreement can be expected to do is push the problem down the road for a few more months. Eventually, we will be back into recession, and the revenue /disbursements mismatch will be worse than it was the last time around.

Mismatch between Government Revenue and Expenditures is Very Large

The Rest…HERE

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