Mercury Rising 鳯女

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Why We Need The Price Of Oil To Stay Low (for the next couple of years, anyway)

Posted by Phoenix Woman on July 7, 2009

Nouriel Roubini looks at what would be the most likely trigger of a W-shaped recession as opposed to a true recovery:

There are also signs that there may be forces leading to a double-dip recession, sometime toward the second half of next year or towards 2011. If oil prices rise too much, too fast, too soon, that’s going to have a negative effect on trade and real disposable income in oil-importing countries (US, Europe, Japan, China, etc.). Also concerns about unsustainable budget deficits are high and are going to remain high, with growth anemic and unemployment rising. These deficits are already pushing long-term interest rates higher as investors worry about medium- to long-term stability. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, you are going to have a sharp increase in expected inflation – after three years of deflationary pressures – that’s going to push interest rates even higher.

That’s why it’s very good news that the one-man speculative bubble that sent oil prices spiking in the last few months has been popped. This won’t kill off the renewable-energy industry, as has been feared, but it will keep the Chinese from being able to use our debt load against us and perhaps enable another round of stimulus spending. (The Japanese, in backing the US over China with regard to China’s drive to topple the dollar from global prominence, apparently recognize that a healthy US can protect them from an aggressive China.)

One Response to “Why We Need The Price Of Oil To Stay Low (for the next couple of years, anyway)”

  1. Charles II said

    1. Japan is a historic enemy of China. The first kamikaze was literally a “divine wind” that wrecked the Chinese fleet intent on invading Japan very roughly 1000 years ago.
    2. There’s a downside to low oil prices: unless they stay above 50, most green energy will have a tough time establishing itself.
    3. Roubini was giving the laundry list of things that tend to lower liquidity. It would be better to have high oil prices, since people can adapt than, say, raising sales taxes.

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