Cheap Money Helped Inflate Energy Balloon

An easy monetary policy applied by the US Federal Reserve and other central banks since 2008 to stimulate the economy after the global debt crisis may have contributed to the shale oil boom and bust. The reduced interest rates and borrowing costs may have encouraged speculative behavior among investors searching for high yields. “The increase in debt went hand in hand with a drastic increase in U.S. fracking oil production,” note 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 . The investment losses eventually outweighed the positive effects of lower energy prices for consumers. – YaleGlobal