I can still remember when my dad used to fill his car tank, and the price meter would show a “0.75 Dhs/gallon” that is equivalent to 0.2$. Now as and after 15 year as I fill my car and know that the oil per gallon is “1.82 Dhs” = 0.50$. This may not be of significant value to other countries specially Europe and North America, which may have much more sky rocketing prices. However, the issue of prices and economy changing up and down in the past 1 and a half decade has been of great irritation to people.
In the past week or so news have been filling up the web of “Japan central bank cuts inflation” , “European central bank is planing to pump more money to the economy“, and “Oil price is on the rise”. All of these article since the beginning of this year made me think. As it is important to point out that I’m a self-educated on economy average citizen all of the sources and facts been used in the article are of credibility.
Chapter 1: Low Oil prices:
Oil prices has been dropping since the beginning of this year, reaching to almost 60$ a gallon. This low price could be at first sight of great news to us, as we are average consumers would be partying with more road trips and cheaper gas prices. The bad news is this is not the case. With oil price lowering countries like Russia which depends heavily on gas prices to leverage its budget as an economy source will start to fall into deeper recession. The president of Russia Vlad Putin has already promised a better economy, and health system to Russian citizens, yet with the oil price going less then 100$ this promise is impossible to keep (NY post). This does not only include Russia but the Euro zone, Africa, Asia [specially Japan], and as seen with Canada as the CAD depreciate. In addition with lower oil price it’s likely that a similar 2008 depression is crawling our way.
Chapter 2: High dollar exchange rate:
The USD is picking up after a good fall in exchange rate. Therefore, it is a simple equation low oil price + high dollar rate. As we know gas prices are exchanged with dollars in the international market. Thus, when countries which are in debt such as Euro zone or Russia whom are struggling before due of the low oil price and recession [note: with recession comes depreciation of the currency]. Now have a better problem and that a higher dollar this will not only lower bond holding as investors won’t be of interest of their low return bond. But this will cause even worse debt crises lending and interest rate are of great expenses to non peg USD countries. As for USA it is a great economical boom it would cause an increase in economy, imports [cheaper], and stander of leaving.
This roller coster/maze of the economy is creating an imbalance of countries booming and countries going to complete debt and recession is of great threat to the economy. So is it reversible? will it trigger WWIII? what to do?
What do you think the economy is heading to?
Oil price video: http://bcove.me/f6oky5w8