We left off yesterday with the question of “How does this help us ‘Mericans?” Simple, we can afford expensive oil. But its a flat world and we want the global answer. We here in the States have felt a pinch because of the rise in oil. Downsized from V8 SUVs to 4 and 6 cylinder crossovers and sedans. We drive a little less and pay a bit more, but we’re getting by. Recessions are fine, as we always bounce back. The folks in Southeast Asia that can barely afford the $2,500 Tata Nano will be completely screwed once their government ceases the oil subsidy.
Think about it, the people in Malaysia look at a $2,500 car the way we look at a $25,000 car. Imagine if they were all of a sudden looking at $4.30 a gallon instead of the about $2.30 they were paying earlier this year. Just a recent increase to $3.30 a gallon is expected to push their inflation to 5%. Ouch!
While they have to deal with that kind of inflation our Fed will be doing what they can to limit our exposure to the same inflation. By raising interest rates our dollar becomes more valuable to the rest of the world. In essence, it costs more to buy American money. This makes the dollar increase in relation to the other currencies, re-establishing the greenback as the “gold standard” of the world.
Our government knows this, as they’ve gone to the foreign governments to put in their 2 cents on the matter:
” …a call from the United States for an end to heavy price subsidies that protect many Asian drivers from soaring costs fell on deaf ears, as China and India said they could only raise domestic rates gradually in view of their fragile economies.”
And here is why high oil prices are win/win for us: If the foreign economies continue to use subsidies, they’ll bankrupt the governments. If the governments end subsidies, rampant inflation will kill the economy and possibly incite rebellion. Remember China is still Communist, we’d love nothing more than to see them go Democrat. So say goodbye to Gurdeep Patel at work because he can’t afford the commute into New Delhi from Faridabad anymore. Oh, might want to pull out of those Southeast Asia ETFs and mutual funds too. America’s Back!
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. |
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