Oil 1 Peak Oil 21
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- US Economy – Growth
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US Economy – StagflationRising inflation worldwide forces stagflation Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University, 2008 http://www.project-syndicate.org/commentary/roubini6/English, The Specter of Global Stagflation, Project Syndicate Inflation is already rising in many advanced economies and emerging markets, and there are signs of likely economic contraction in many advanced economies (the United States, the United Kingdom, Spain, Ireland, Italy, Portugal, and Japan). In emerging markets, inflation has – so far – been associated with growth, even economic overheating. But economic contraction in the US and other advanced economies may lead to a growth recoupling – rather than decoupling – in emerging markets, as the US contraction slows growth and rising inflation forces monetary authorities to tighten monetary and credit policies. They may then face “stagflation lite” – rising inflation tied to sharply slowing growth. Oil prices drive stagflation-caused recessions Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University, 2008 http://www.project-syndicate.org/commentary/roubini6/English, The Specter of Global Stagflation, Project Syndicate Stagflation requires a negative supply-side shock that increases prices while simultaneously reducing output. Stagflationary shocks led to global recession three times in the last 35 years: in 1973-1975, when oil prices spiked following the Yom Kippur War and OPEC embargo; in 1979-1980, following the Iranian Revolution; and in 1990-91, following the Iraqi invasion of Kuwait. Even the 2001 recession – mostly triggered by the bursting high-tech bubble – was accompanied by a doubling of oil prices, following the start of the second Palestinian intifada against Israel. US Economy – GrowthHigh oil prices diminish US economic growth Hillard G. Huntington, Director Energy Modeling Forum Stanford University, 10-3-05 http://www.stanford.edu/group/EMF/publications/doc/EMFSR9.pdf, The Economic Consequences of Higher Crude Oil Prices, Final Report, EMF SR 9, The US oil import demand curve is related to gross output and value added (labor and capital’s share of output) through the production function. Under certain conditions, the area under the U.S. oil demand curve will represent gross output.8 As the oil price increases, energy will account for more gross output than before, especially because substitution possibilities are severely limited in the short run. That will cause GDP (both value-added production and the prices paid to labor and capital) to fall by the shaded area. The US economy will be unequivocally worse off after the external supply shock. Persistent oil price increases curb US economic growth Nouriel Roubini, professor of economics @ NYU and Brad Setser, Research Associate, Global Economic Governance Programme, Oxford, August 2004 http://pages.stern.nyu.edu/~nroubini/papers/OilShockRoubiniSetser.pdf, The effects of the recent oil price shock on the U.S. and global economy
Private sector estimates generally suggest that a persistent 10% increase in the price of oil – say an increase from $30 to an average of $35 over the course of 2004 -- would reduce the US and the G7 growth rate by about 0.3%-0.4% within a year. Some (Goldman 3 Oil prices have been highly volatile in recent months and the precise price increase depends on where oil settles and on the baseline used in the comparison. At the current (end of July and early August 2004) price of $43, oil has increased by 65% from its average 2002 price of 26. At $43, oil has increased by 38% relative to the average 2003 price of $31.1. The 2004 price increase is somewhat lower if one takes the average of oil price for 2004 that is $38, as of August 2004. Prices refer to West Texas Intermediate spot levels. Sachs) are more pessimistic, and calculate that if oil prices were to increase further to levels closer to $45, the reduction in the G7 growth rate may be closer to 1% of GDP. Thus, private estimates of the negative effects of an oil shock currently range between 0.3% to 1% of US and G7 GDP growth. This means that the US economy, which was growing in Q4:2003 and Q1:2004 at about a 4.3% average rate could be expected to see a slowdown of its growth to a level between 4.0% and 3.3%. Global growth would also de-accelerate from its current very strong pace. And, indeed, the first estimate for Q2:2004 U.S. GDP growth was 3.0%, confirming that high oil prices in the first half of 2004 put a dent on real consumer demand. Looking ahead, persistence of oil prices at recent high levels of $43-44 per barrel (or even higher prices) could further slow down the U.S. economy below a 3% growth rate. US Economy – World GrowthRising energy prices significantly decrease global growth C. Fred Bergsten, director of the Peterson Institute for International Economics, 9-9-04 http://www.iie.com/publications/papers/paper.cfm?ResearchID=222, The Risks Ahead for the World Economy, The fifth threat is energy prices. In the short run, the rapid growth of world demand, low private inventories, shortages of refining and other infrastructure (particularly in America), continued American purchases for its strategic reserve and fears of supply disruptions have outstripped the possibilities for increased production. Hence prices have recently hit record highs in nominal terms. The impact is extremely significant since every sustained rise of $10 per barrel in the world price takes $250 billion to $300 billion (equivalent to about half a percentage point) off annual global growth for several years. Mr. Greenspan frequently notes that all three major postwar recessions have been triggered by sharp increases in the price of oil. US Economy – Japan, Germany, South KoreaDeclining dollar undermines export-dependent countries; Germany, Japan and South Korea will falter Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University, April 2008 Proquest, The Coming Financial PANDEMIC, Foreign Policy, Iss. 165; pg. 44 A WEAK DOLLAR WILL MAKE MATTERS WORSE: Already, the economic slowdown in the United States and the Fed's interest rate cuts have caused the value of the dollar to drop relative to many floating currencies such as the euro, the yen, and the won. This weaker dollar may stimulate U.S. export competitiveness, because those countries will be able to buy more for less. But, once again, it is bad news for other countries, such as Germany, Japan, and South Korea, who rely heavily on their own exports to the United States. That's because the strengthening of their currencies will increase the price of their goods in American stores, making their exports less competitive. US Economy – World Econ & TradeWorld economic decline and trade protectionism are inevitable due to rising oil prices and a declining US dollar C. Fred Bergsten, director of the Peterson Institute for International Economics, 9-9-04 http://www.iie.com/publications/papers/paper.cfm?ResearchID=222, The Risks Ahead for the World Economy Five major risks threaten the world economy. Three center on the United States: renewed sharp increases in the current account deficit leading to a crash of the dollar, a budget profile that is out of control, and an outbreak of trade protectionism. A fourth relates to China, which faces a possible hard landing from its recent overheating. The fifth is that oil prices could rise to $60 to $70 per barrel even without a major political or terrorist disruption, and much higher with one. Most of these risks reinforce each other. A further oil shock, a dollar collapse, and a soaring American budget deficit would all generate much higher inflation and interest rates. A sharp dollar decline would increase the likelihood of further oil price rises. Larger budget deficits will produce larger American trade deficits, and thus more protectionism and dollar vulnerability. Realization of any one of the five risks could substantially reduce world growth. If two or three, let alone all five, were to occur in combination then they would radically reverse the global outlook. US Economy – 3rd World ExportersUS economic decline drops commodity prices crushing 3rd world exporters Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University, April 2008 Proquest, The Coming Financial PANDEMIC, Foreign Policy, Iss. 165; pg. 44 COMMODITY PRICES WILL FALL: One need only look at the skyrocketing price of oil to see that worldwide demand for commodities has surged in recent years. But those high prices won't last for long. That's because a slowdown of the U.S. and Chinese economies-the two locomotives of global growth-will cause a sharp drop in the demand for commodities such as oil, energy, food, and minerals. The ensuing fall in die prices of those commodities will hurt the exports and growth rate of commodity exporters in Asia, Latin America, and Africa. Take Chile, for example, the world's biggest producer of copper, which is widely used for computer chips and electrical wiring. As demand from the United States and China falls, the price of copper, and therefore Chile's exports of it, will also start to slide. 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