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I argue here that US economy is not less vulnerable to an oil shock than 30 years ago. I shall use a simple example, with only approximate statistics. The average american citizen is now twice wealthier than 30 years ago and uses about the same amount of gasoline for the private car, paying now only 3% of disposable income for gasoline instead of 6% in the (crude oil squeezed) year of 1980.
Now, let's suppose a world oil supply disruption occurs on the same magnitude as in 1980. It's not unreasonable to think that for continuing life as usual, the americans may be willing to pay up to 6% of the now enhanced income. And this may bring the price of crude oil much above 100$ per barrel.
Back to macroeconomics, this may bring an increase of 300 billion $ of US trade deficit , on top of the 700 billions $ already in place. All this in a stressed world economy.
Most probably, deep recession, possibly world recession shall impede this scenario from coming true. Market forces are great for gradual change. Political leadership is in need at discontinuities.
From:The Oil Drum (Last Comment)
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this was an interesting comment i read in an article awhile back
i was lucky to find it again..
our treasurer seems to think a 70's oil shock is on the cards*
not sure if he might be right about this
what happened to the US$ yesterday ?
the AU$ was like 70c US now its back to 75..that was the biggest fall i have noticed for quite awhile
*no ,he says its actually happening in a similar fashion to the 70's ?
Quote:
But Mr Costello said Australia was now experiencing an oil crisis similar to what occurred in the 1970s, when soaring oil prices pushed up prices across the economy.
Mr Costello said he was confident businesses would continue to keep a lid on prices, but if they did not, there would be wider repercussions for the country.
"We have to be absolutely vigilant that this oil shock does not set off a wave of inflation because if it did we would all be punished a second time," he said.
"Not just punished at the bowser but punished a second time with inflation and the commensurate monetary policy response."
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