Cheap Money Helped Inflate Energy Balloon

The loose monetary policy applied by the US Federal Reserve, crafted to stimulate the economy after the 2007-2008 global debt crisis, may have also contributed to the shale oil boom and recent bust. The policy of reduced rates and borrowing costs may have encouraged speculative behavior as investors searched for high yields. “The increase in debt went hand in hand with a drastic increase in U.S. fracking oil production,” explain Rani Molla and Lisa Abramowicz for Bloomberg News. “As it was, the spigot of cash flooding into junk bonds, master limited partnerships and other energy investment vehicles was so great it enabled both stable and shaky companies to obtain easy financing.” The columnists add that fracking accounts for half of US oil production and oil output increased by more than 40 percent from 2008 to 2014, leading to a market glut, losses and insolvencies . Eventually investment losses outweighed the positive effects of lower energy prices for consumers. – YaleGlobal