What is fracking? Fracking is the process of injecting liquid at high pressure into subterranean rocks, fissures, etc., in order to force them open and allow more oil and gas to flow out of the formation, allowing it to be extracted at greater volumes. Are you aware that fracking stocks are down 40% in just over 5 months? If that doesn’t sound like a bubble about to burst, I don’t know what does.
On Monday, December 8, I wrote an article detailing the downside of falling oil and commodity prices for our economy despite obvious benefits to consumers and businesses.
Why?
Because it’ll burst the great fracking bubble and because falling commodity prices just add to the deflationary environment against which central banks are fighting so hard in the first winter season we’ve seen since the Great Depression.
I just read an article by David Stockman that talked about how the Fed has created yet another bubble, and this time it’s the fracking bubble.
Fracking is very interesting technology, but it’s not as new as everyone would lead you to believe. The process has been around since 1949 when the first natural gas fracking field was created in Hugoton, Kansas.
Today, 65% of oil rigs are horizontal (rather than the traditional vertical style) and almost all of them need some degree of fracking stimulation to work.
Fracking began taking off back in 2005 and the debt to finance it began its acceleration in 2009… and what is driving this “boy wonder” industry that seemingly came out of nowhere, began leading us toward energy independence and has now inflated into a bubble about to burst?
It’s simple: cheap money.
Money Flood
Free or very cheap money will always cause excess and mal-advised investments… like the overbuilding and speculation in housing from 2000 to 2005, the student loan bubble since 2009 and the current ever-growing subprime auto loan bubble.
