"Alberta Energy Firms Face Harsh New Reality"Jeffrey Jones, Jeff Lewis, Carrie Tait
The Globe and Mail, November 28, 2014.
available at http://tinyurl.com/pgeky5l
The recent oil price slide will probably completely eliminate the Canadian federal budget surplus. That creates serious problems for a government that has fixed expenses (salaries, pensions, debt service) but falling revenues. Most of the world at this point has, or soon looks to have, the same problem as Canada.
A nice way to understand this situation is to read a brief blog post of Paul Krugman's from October 15, entitled "1937." He noted that markets are signaling that "once again the big risk is deflation or at least very sub-par inflation." He measured deflation in that post by looking at the market for Treasurys, specifically the 10-year, showing the yield had fallen below 2%, potentially a sign of recession, deflation, or both.
When I tucked the Economist article away for future reference in 2012, I never would have thought that a falling nominal oil price could be a bad thing. Today, though, I'm not so sure.
And I'm not the only one.