The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
Oil hits $100 per barrel. What does this mean for the economy? Here are some thoughts:
There is a close historical relationship between oil prices and inflation. If this relationship continues, inflation soon will rear its ugly head.
The economists, media and politicians wrongly will blame the federal deficit (which since the end of the gold standard, has had no relationship with inflation), and will work even harder to cut federal spending. This cut will slow or even end the recovery. Meanwhile, the Fed will raise interest rates, which contrary to popular myth, actually is stimulative (high rates increase federal interest payments into the economy).
In fact, if you’re looking for a relationship, check this out: Since 1985, oil price changes have generally paralleled GDP changes. Rising oil = rising GDP:
I suspect the reason is: As GDP increases, it increases the demand for oil, which responds with price rises (either via market forces or via Saudi perception of demand. So, at least partly, the recent increases in GDP are responsible for the $100 oil.
So, in a convoluted, round-about way, rising oil prices will hurt the recovery, though in fact, there seems to be no direct relationship between the two. The pundits will blame high federal deficits, higher interest rates and higher oil prices for our reduced growth, when the real culprit will be reduced federal deficits.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth.
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