There’s nothing bad about drilling for oil. And there’s nothing bad about the fact that the industry has created a lot of jobs. It is problematic however, that the industry is highly leveraged and reliant on easy money policies to keep the exploration and drilling going. Similarly, there was nothing bad about building a lot of housing during the 1990s and 2000s. The problems arose not from the fact that homes were being built, but from the fact that they were built on a mountain of debt based on easy money. The shale oil industry may simply be the next (Austrian) textbook example of malinvestment.
Ben Swann recently interviewed Marin Katusa, author of The Colder War about the shale oil industry.
“A big effect of QE,” he says, was that money flooded into the shale sector as people were chasing yield. The result is there is now a “$150 billion of debt in the US shale sector,” and if oil prices continue to go down, “There’s going to be a lot of defaults.” And Katusa worries about the “spillover” into other industries.
“What’s going on the US shale sector right now will be bigger than Lehman Brothers.” he says.
