$100/ Barrel, the U.S. Economy and Ben Bernanke
My copy of Barron’s didn’t show up today, so I had to make do with the weekend edition of the Journal. Bonus! There was a very interesting article dealing with speculative economics, in this case how the U.S. economy would handle $100/ barrel oil. With oil currently above $80, this is hardly science fiction.
The authors conclude that the economy would probably adapt to that price level much better than it did in 1980, the time at which oil hit an all-time high ($101 in inflation-adjusted terms). However, there are two conditions that are necessary for a benign economic state under the “century barrel”: one, that the rise to $100 takes place gradually, not suddenly. Two, oil producing nations must re-invest a share of their profits in the United States. Both of these conditions appear to be met at this time (for the second condition, witness the acquisitive instincts of Dubai and Qatar in their pursuit of Nasdaq/ London Stock Exchange).
Another interesting point that the article reveals is that one of the causes of the economic turmoil provoked by the 3 oil shocks that occurred since 1980 lies not with the price of oil itself, but with the Fed’s overreactions in cutting interest rates. Thankfully, this was revealed by an economist who looked at the question in some detail. His name? Dr. Ben Bernanke.
Enjoy your weekend!
Total: 227 words
Time: 10.5 minutes (w/o spellcheck)
*** The above text was written (and spell-checked) in ten minutes. As a result, some of it may not stand up to rational scrutiny. I apologize preemptively for any errors, omissions and misrepresentations. ***