Re: Effects on High Oil Prices on Economy???

["廖子光 Henry C.K.Liu 郭??" <hliu@xxxxxxxxxxxxxxxxxx>]

There is one factor in the current oil price picture that helps the US economy.
Most oil windfall profits are flowing back into the US equity and bond markets
because of the pervasive aversion of oil producing nations, including the North
Sea nations, to spend on social programs. The increased oil price is being paid
by average citizens in the form of higher gasoline prices and higher untility
bills, but the high income group see their assets bouyant by the inflow of oil
profit into the equity and bond markets, prolonging the boom in the US and
exacerbating income disparity.

Henry C.K. Liu

Jay Moore wrote:

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> Are Fast-Rising Oil Prices Economy-Killers?
>
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> Story Filed: Sunday, September 03, 2000 11:41 AM EST
>
> NEW YORK (Reuters) - Is it fair to call soaring oil prices economy-killers?
> Some experts say yes, yet Wall Street has been relaxed about the explosion
> in oil prices and the prospect that energy may be a expensive item for a
> long time.
>
> Indeed, this year's surge in crude oil prices to a 10-year high has changed
> the inflation script. Gasoline prices at the pump reached record levels this
> summer and heating oil and natural gas prices are forecast to go through the
> roof this winter.
>
> With the stock market chugging along nicely, investors seem to be hoping
> that the economy will be miraculously lucky in avoiding the nasties from
> oil's spike.
>
> Something else has changed. The interest-rate environment is no longer as
> favorable, now that the Federal Reserve has pushed up the cost of borrowing
> by 1.75 percentage points to a nine-year high. The central bank's goal is to
> zap consumer spending, which has powered the economy's expansion to a record
> 10th year. The concern is that such long-running growth could spark a cycle
> of inflation.
>
> Faced with this new economic landscape, the Nervous Nellies say higher
> interest rates and oil prices are a bad mix that may slam the economy.
>
> ``We remain concerned that rising energy prices will spill over into
> non-energy prices, raising core consumer price inflation and the need for
> higher interest rates,'' says Gail Dudack, chief investment strategist for
> UBS Warburg.
>
> RIGHT OR WRONG? CHECK IT OUT.
>
> ``Certainly, higher interest rates, higher energy costs and slower job
> growth suggest that the economy cannot keep up its previous pace,'' says
> Allen Sinai, chief global economist for Primark Decision Economics Inc.
>
> ``The 175-basis-point increase of short-term interest rates (by the Fed) and
> $75 billion to $100 billion equivalent tax hike from higher energy prices
> must slow the economy. But how much so is not clear,'' he said.
>
> Others cited the psychological negative that soaring energy prices will have
> on the consumer and producer price indexes through year-end.
>
> With the PPI and CPI trending higher, the bigger the odds of more
> interest-rate increases as inflation-fighting Alan Greenspan, the Fed
> chairman, turns up the noise about the damage that escalating oil prices
> will have on the economy.
>
> GOODBYE TO ERA OF ULTRA-LOW INFLATION
>
> ``You'd never know there was a crisis on Wall Street,'' says Stephen Leeb,
> editor of Personal Finance, a financial newsletter. ``Like the rest of
> America, the investment community thinks the high price of energy is just
> temporary. Prices are not going to come down. In fact, they are going to
> continue to soar.''
>
> Oil prices have more than tripled since February 1999, climbing from an
> unusually depressed $10 to more than $30 a barrel.
>
> Heating oil prices galloped to a 10-year high this week and now stand at
> twice the level of the winter of 1999, at more than $1 a gallon.
>
> There's more bad news for heating oil customers. Abnormally low supplies
> will keep upward pressure on prices. U.S. heating oil stocks are down 39
> percent from a year ago and in the Northeast, the world's largest heating
> oil market, reserves have plunged to 20 million barrels from 45 million in
> 1999, according to the American Petroleum Institute.
>
> In another twist of 'Our gain is your pain' theme, U.S. producers of heating
> oil are shipping heating oil to Europe because prices are higher on the
> Continent.
>
> Natural gas producers, meanwhile, are asking state regulators for
> double-digit price increases with natgas already costing more than twice as
> much as a year ago.
>
> The summer wasn't a walk in the park for the automobile-dependent Americans.
> Gasoline prices climbed to a record high of more than $2 a gallon in some
> areas of the country. After a two-month slide, gasoline prices are again
> climbing because of skyrocketing oil prices.
>
> FAIR TO GIVE ENERGY PRICES AN ECONOMY-KILLER STATUS?
>
> ``Most economists have too short of a memory -- or they don't have one
> because they did not live through it -- but the last period of
> hyper-inflation in 1974 was started by rising energy prices, which crept
> into all other goods and services,'' says Ned Riley, chief investment
> strategist for State Street Global Advisors in Boston.
>
> ``Back then, most people excused away the inflation pressure because it was
> energy-related and clearly OPEC was going to break down and crumble and we
> would not have an inflation problem,'' he said.
>
> ``Inflation peaked around 1980 and it showed that it was not a short-lived
> thing, but rather a quite significant period of protracted rising prices and
> wages catching up with the cost of buying goods,'' Riley said.
>
> Rising energy prices also caused or aggravated recessions in the 1980s and
> 1990s.
>
> For the last half-decade, cheap oil may have boosted global economic growth
> by keeping inflation low. But the great times came to an end in the spring
> of 1998, when the Organization of Petroleum Exporting Countries, known for
> its lack of discipline, finally got its act together and started cutting
> back on supplies.
>
> The concern now is that the global economy may be seeing the start of a
> fundamental change in the oil market. If so, energy costs may stay high for
> a long time, or until OPEC infighting starts again, or a global recession
> causes the world to gag on excess oil production.
>
> Meanwhile, U.S. inflation gauges have been mysteriously tame this summer,
> despite record gasoline prices. But the impact of fast-rising oil prices may
> take up to 1-1/2 years to fully snake through the economy.
>
> Sinai said Greenspan does not have as much elbow room as in 1999, when
> inflation was missing from the radar screen.
>
> Last year, the core rate of inflation, which excludes the wildly fluctuating
> food and energy prices, edged up just 1.5 percent -- under the Fed's
> tolerance of 2.0 percent. This year, the core rate has risen to 2.5 percent.
>
> ``Any ratcheting-up from here would put the Federal Reserve in a very
> difficult position in terms of maintaining price level stability, which is
> the Fed's stated goal,'' Sinai said.
>
> The explosion in energy prices may be more damaging to the economies of
> other industrialized countries because they pay for oil in U.S. dollars,
> which is a currency that is strong against the weak euro.
>
> Yet some experts say energy prices are not as much of a factor in this 'New
> Economy' because technology has transformed how business is done. In other
> words, technology has rendered historical inflation extinct.
>
> Others disagree. In 1990, when Iraq invaded Kuwait, oil doubled to more than
> $40 a barrel and U.S. inflation shot up to more than 6 percent from 4.6
> percent in 1989.
>
> Ten years later, can the ``Great Technology Revolution'' have so radically
> changed the way the economy works that it will be immune to leaping oil
> prices?
>
> That seems to be the hope on Wall Street.
>
> Questions or comments can be addressed to Pierre.Belec(at)Reuters.Com).