From Russia to Iran, the consequences of the global oil bust

[fj1200]

From Russia to Iran, the consequences of the global oil bust (https://www.washingtonpost.com/opinions/the-consequences-of-the-oil-bust/2015/08/20/7c98defe-4770-11e5-846d-02792f854297_story.html?hpid=z3)

While we have been watching the Islamic State and discussing Iran, something much bigger is happening in the world. We are witnessing a historic fall in the price of oil, down more than 50 percent (http://www.nytimes.com/interactive/2015/business/energy-environment/oil-prices.html) in less than a year. When a similar drop happened in the 1980s, the Soviet Union collapsed. What will it mean now?

[Kathianne]

From Russia to Iran, the consequences of the global oil bust (https://www.washingtonpost.com/opinions/the-consequences-of-the-oil-bust/2015/08/20/7c98defe-4770-11e5-846d-02792f854297_story.html?hpid=z3)



Near falling under $40, just now:




<tbody style="margin: 0px; padding: 0px; border: 0px; outline: 0px; vertical-align: baseline; line-height: inherit; background: transparent;">
Commodities » (http://money.cnn.com/data/commodities/)
Price
% Change


Light Crude
40.02
-3.15%


Natural Gas
2.68
-2.61%


Gold
1,160.10
+0.60%


Corn
3.77
-1.44%

</tbody>

[fj1200]

If China crashes it's going to $10. We need a tax cut now. I know that seems unrelated but it isn't to me.

[Kathianne]

If China crashes it's going to $10. We need a tax cut now. I know that seems unrelated but it isn't to me.
Could you expand on that?

[fj1200]

Could you expand on that?

For a long time the US has been the driver of the world's economy and I think our current doldrums economically have proven how important we are to keeping global growth growing. There is no other country or bloc that can take our place, the EU has the size but not the innovation or drive to go into growth mode; and declining populations don't help either along with their acceptance of austerity solutions, even Germany is geared towards an export driven economy. China might, or was, or whatever, be the largest economy but their structure is not able to carry other countries along with their growth. India is just an ancillary player in our growth to I think.

I think the global solution is to enact another round of supply-side solutions here. I know it may sound counter-intuitive but that's the way I see it.

[Kathianne]

As I've repeatedly said, economics is my weak point. This isn't very old, what do you think?

http://www.wsj.com/articles/u-s-lacks-ammo-for-next-economic-crisis-1439865442

[fj1200]

As I've repeatedly said, economics is my weak point. This isn't very old, what do you think?

http://www.wsj.com/articles/u-s-lacks-ammo-for-next-economic-crisis-1439865442

I couldn't read it but I think the gist is that they say the Fed can't ease because rates are at 0 and Congress/POTUS won't act to cut taxes or raise spending due to debt concerns. I think they're partly right about the Fed and rates but they can ease in other ways. And they're probably right about tax cuts/spending not because Congress/POTUS can't it's that they won't. But I think we can get some bang with some tax simplification and reducing regulatory burdens, ACA is high on my deregulate list, that will do worlds of good.

I've said for awhile though that the Federal Reserve has carried us for far too long and is out of bullets and now the fault lines up on BO and his refusal to do anything substantive with Congress. Not that the Republicans have been lining up tax bills or anything for him to veto.

[Kathianne]

Ok, it's behind pay wall. Sorry.

Here's some key parts:


As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession. Their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive.

Money has been Washington’s primary weapon in the decades since British economist John Maynard Keynes proposed aggressive government spending to battle the Great Depression. The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending.


Those tools could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers.

...

The Fed, for example, could experiment with negative interest rates. A recession also could force Congress and the White House to bridge Washington’s partisan divide to strike a deal that pairs short-run stimulus with long-run plans to reduce the deficit.

...

Mr. Bernanke said he was struck by how central banks in Europe recently pushed short-term interest rates into negative territory, essentially charging banks for depositing cash rather than lending it to businesses and households. The Swiss National Bank (http://quotes.wsj.com/CH/XSWX/SNBN), for example, charges commercial banks 0.75% interest for money they park, an incentive to lend it elsewhere.


Economic theory suggests negative rates prompt businesses and households to hoard cash—essentially, stuff it in a mattress. “It does look like rates can go more negative than conventional wisdom has held,” Mr. Bernanke said.


Others, including Sen. Bob Corker (http://topics.wsj.com/person/C/Bob-Corker/6000) (R.,Tenn.), see only the Fed’s limits. “They have, like, zero juice left,” he said.


Many economists believe relief from the next downturn will have to come from fiscal policy makers not the Fed, a daunting prospect given the philosophical divide between the two parties.


Republicans doubt federal spending expands the economy, and they seek to shrink rather than grow government. Democrats, meanwhile, say government austerity hobbles the economy, especially in a downturn.

...


Mr. Elmendorf sees two potential misjudgments for the U.S. over the relationship between growth and debt. The first, he said, would be to assume that higher debt levels eliminate short-term fiscal policy tools in a recession. The second would be to see no need to reduce government debt in the long run.


Even if it were clear that the U.S. could afford to boost spending or cut taxes, partisan disagreements over Mr. Obama’s 2009 stimulus spending stand in the way of a consensus on the benefits of fiscal policy in a downturn.


The $787 billion spending package “was so badly designed it probably gave fiscal policy a bad name,” said Martin Feldstein, a Harvard University professor and former economic adviser to President Ronald Reagan who had earlier supported a large stimulus to address the financial crisis.

...

[fj1200]

I think I had it about right. :dance:

But actually when I posted the thread I was thinking about the Middle East going to hell.

[Kathianne]

I think I had it about right. :dance:

But actually when I posted the thread I was thinking about the Middle East going to hell.

Well then I'm really lost. How does US cutting taxes, save the ME? I think a better plan is blocking the Iran Deal.

[fj1200]

Well then I'm really lost. How does US cutting taxes, save the ME? I think a better plan is blocking the Iran Deal.

My original thought was about the ME. Your oil chart sent me in a different direction.