Monday, April 26, 2010

What are other problems that come with foreign oil dependence?

One most important problem is - risk of inflation.What are other problems that come with foreign oil dependence?
A slow decline in the value of the dollar, or whatever your home currency might be. The reason is that you end up importing oil and exporting your currency. If that exported currency isn't reinvested back into your economy by foreigners, you'll have much less of it to go around. So instead of an inflation risk, you actually have a deflation risk. Since there are fewer dollars chasing too many goods.





Now this effect be countered by printing more money, which in turn does create inflation. And as most economist know, inflation is a monetary policy creation.





In any case, without exports making up the shortfall caused by importing oil, you begin to carry a trade deficit. And more than anything, a trade deficit over time leads to an economic time bomb. The Romans had the same problem back in their hay-day when they ruled the world. Rome imported everything and exported nothing, except their currency. Eventually Rome had to resort to currency debasement and such in a vain attempt to thwart economic collapse. In the end, Rome collapsed no so much by its crazy rulers as by its 1-way economy. A scenario the United States is repeating 2000 years later.





If you get the chance, read this article called ';HOW EXCESSIVE GOVERNMENT KILLED ANCIENT ROME'; by the Cato Institute in 1994. Its a good read for those with an eye for economics..





URL: http://www.cato.org/pubs/journal/cjv14n2鈥?/a>
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