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"I gave a little talk at a financial conference (Casey Research) that included the following very simple economic scenario:
- Oil prices are going up (inexorably). China + Peak Oil + Financial diversification. Oil doesn't stop going up until GDP goes down. It's an inexorable force until then.
- The US middle class is broken. A hollow husk unable to withstand the slightest gust. Regardless, it's the ultimate source of demand for the global economy. It's an immovable barrier.
- When oil hits ~$150 a barrel the impact occurs between inexorable force and immovable barrier. The combo of higher prices at the pump and for everything else (food and other essentials) starts to crush middle class budgets and force defaults. The economy shrinks until the price of oil goes down enough to be affordable again (for those still left in the middle class).
We keep repeating the pattern above until we're in the second depression (D2). Long term low demand."
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