Mindmeld, Lizzie,
We should ask ourselves what caused this spike in oil prices.
Personally I'm of the opinion that the tax cut AND the war are the main contributors. Here's my logic.
The tax cut lead to a stimulation of the economy, but because of the outsourcing this only resulted in a bigger balance of trade deficit, leading to a weaker dollar, and an increased demand for oil in China/India which are even more energy inefficient than the US. The balance of trade deficit lead to a lowered confidence in the dollar -> dollar drops against Euro.
Second: The budget deficit (because of lower taxes, AND the Iraq war) leads to the expectation that the US will finance this debt by printing money, the way we financed the Vietnam war in the 1970 decade. This leads to an even lower confidence in the dollar's future.
Now everybody wants to lower their exposure to the dollar -> dollar drops more, and worse, investments in the US dries up, when everybody invests overseas (a safer investment since you stand to gain on the dollars fall even if the stock you invested in is stagnant in Euro/yen/yuan... terms.
Thus, the tax cut and the war has trust us into a negative feedback loop, which only reinforces the outsourcing trend.
Without these two events, you would have seen falling salaries here in the US, making export of goods, rather than export of jobs, more profitable.
We are truly hosed, because of our unwillingness to address the real problem, and our willingness to believe fairy tales from our leaders.
Peter |
