Down $100 trillion.


$100 trillion. Think about that number for a while. The entire world’s GDP is only $78 trillion.

OK, Dr. Filly. What’s your point, ask you? To what does the “down $100 trillion” relate? It relates to the drop in the value of oil since the collapse in oil prices began about 18 months ago, answer I. The value of oil reserves has fallen by more than $100 trillion.

One can think of “oil reserves” like money in the bank. You have a bank balance. When you look at it you feel good (or bad). If you feel bad you probably aren’t going to go out and buy a new car or even a new suit/dress. One may be able to say the same thing about countries who depend on oil. Their bank account looks a lot different than it did a couple years ago.

Crude oil prices were about $100 in mid-2014. Now the price hovers near $30. 

[Source: $100 Trillion Up in Smoke, by John Mauldin]

Screen Shot 2016-02-06 at 8.13.47 PM

Let that sink in. The total value of all the world’s oil reserves is over $100 trillion less than it was just a year and a half ago.

(By the way, I verified Mr. Levine’s reserve total by consulting the CIA’s World Fact Book. It says total world “proved” oil reserves were 1.656 trillion barrels as of January 1, 2015.)

To put these figures in perspective, consider that Google… briefly surpassed Apple last week as the planet’s largest publicly traded company. Both are worth around $500 billion, depending on the day. The lost value in crude oil is equivalent to a couple of hundred Googles and Apples going up in smoke.

If stock values were crashing to that degree, we would call the losses earth-shattering. Yet otherwise intelligent people are saying the oil collapse is a minor issue.

It is true that the loss of value is somewhat less dire than the raw numbers imply. The companies and countries that own the world’s oil reserves don’t usually value them at the market price. They mark the value up or down gradually, using long-term average prices or other discount mechanisms. They also account for production costs.

Nevertheless, if your wealth is tied up in oil reserves, your asset valuation is down sharply since a couple of years ago. The collective balance sheet hit adds up to a staggering amount of money.

Tell that to the “more than 80% of economists” that are saying there won’t be a recession this year.

One hundred trillion dollars is a very large amount of money. It is almost as much as the United States owes in unfunded liabilities already passed into law by our Washington spendthrifts ($127 trillion)! And keep that number in mind when you vote in November!

Roy Filly

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About Roy Filly

Please read my first blog in which I describe myself and my goals.
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