If you believe that demand from India and China will send the price of oil and commodities to “infinity and beyond” you’ll end up losing your shirt and your sanity.

Already car sales are falling in both India and China. For India, this is already the second month in a row. For China, this is just the first. For both, things are about to get much much worse.

The per capita income for China is about: $5292 (IMF, 2007 est.)*
The per capita income for India is about: $2659 (IMF, 2007 est.)*

Cars are unaffordable luxury items for all but the richest percentiles in these countries, and that’s with state subsidies. That is rapidly changing.

In Oil drops on Subsidy Cuts in China, India, Malaysia, Taiwan I argued: “This is the catalyst that will finally burst the oil bubble. India, Malaysia, Indonesia and Taiwan have increased fuel prices and reduced subsidies this year. This will have an immediate effect on fuel consumption in these nations because they really are marginal consumers and are therefore the most price sensitive.”

Since then oil specifically and commodities in general have gone into cliff diving mode…

In Dollar Smile, Global Decoupling, Oil Super Spike and Yields I argued:

“Increased demand from developing nations won’t drive oil much higher. Developing nations are the new marginal consumers. That is to say they are the most price sensitive elements of oil demand. For first world nations oil demand is very inelastic. For developing countries oil demand is far more elastic.