Why Expensive Oil is Good for your Mortgage

Here is an analysis of US Income, thanks to Gapminder , another company acquired by Google Inc http://preview.tinyurl.com/37n6qe

us-incomes.GIF

US Income has risen steadily ,despite the Korean War,Vietnam War ,Cold War,Iraq War(s),Oil Shock(s),Japanese Imports, Chinese Imports, Indian Outsourcing.

The simple reason is that a flexible economy is more efficient at using capital than any other economy and the US continues to show the maximum readiness to deal with crisis urgently and with flexibility . Take the sub prime crisis in which the Fed is effectively financing the mortgage debts by its revenues (by sale of Treasuries) to the rest of the World.

Now ,coming back to the title- Why expensive oil is good for you ?

Well ,one thing, Arab terrorists don’t get even a fraction of Oil money. In 50 years of continuous oil revenue, hundreds of billions have been invested by Arab countries in the US financial system , which continues to be the safest and most reliable system in the world. The 9/11 attacks cost only 1 million dollars, and money to terrorists is not an issue because of the much less cost in buying truck bombs, etc..

Well , if Oil rises to 104 Dollars a barrel, where do you think the Arabs will invest those dollars- estimated to be 1-2 trillion of additional global liquidity. Would you prefer Arab countries to have enough money to feed and educate their populations or would you want them to be unstable , with lesser money. Same is the effect of extra money on Russia. Well fed populations are less likely to be frustrated and resort to desperate attacks.

The answer is those dollars are likely to flow back into the US financial system giving Wall street more liquidity than the Fed can give, Arabs and Russians more pride and less frustration, and the banks are less likely to foreclose if they themselves have money in the bank.

Remember banks want to make profits and that can happen if you pay their loans for longer tenures.

Thus expect banks to reduce mortgage payments by increasing tenure, rather than foreclose too eagerly and invite political scrutinies and backlash.

And the Arabs may just save the day for the US financial system.

This is an example of Adam Smith’s invisible hand… Think about that.

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Author: Ajay Ohri

http://about.me/ajayohri

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