Thursday, December 8, 2011

Presidential Campaign Rhetoric Could Destroy Western Economies

Campaign rhetoric from GOP candidates Mitt Romney, Rick Perry,  and Newt Gingrich regarding a get tough policy on Iran could further weaken the U.S. economy in the short term, and destroy the Western economies in the long term.

If the Obama administration carries out tougher sanctions and other covert actions against Iran in order to bolster Obama's Commander-In-Chief image just before the 2012 election, it could mean more pain at the pump for both the U.S. and European economies.
 
The last time there was significant sabre rattling by the U.S. and Israel against Iran in June 2008, world oil prices saw the largest 24-hour spike in oil price history.

While Republicans constantly refer to the Reagan Revolution and the changes to 1986 U.S. Tax Code, the sustained drop in oil prices had as much to do, if not more, with the sustained U.S. economic prosperity enjoyed under the Reagan Administration.

Likewise, Democrats constantly refer to Clinton's tax policies for the economic prosperity enjoyed under his administration.  But again, the drop in oil prices after Gulf War I, coupled with technical innovations, were the major contributing factors to U.S. economic growth.

As the inflation-adjusted historical oil price chart demonstrates, not a single sustained economic recovery has occurred in the United States over the last 40 years when oil was over $40 a barrel.




The chart also demonstrates that a rise oil prices coincides with the buildup of U.S. military and political intervention in the Middle East following the 9/11 attacks.

By violating the historical $40 a barrel rule, the chart shows that the economic growth in the 2000s was never real, but just an illusion caused by U.S. government intervention in the housing market that was unsustainable.

When the financial collapse occurred in  2008, oil prices were well on their way under the magical price of $40 a barrel.  

If this drop had been allowed to occur on its own, the U.S. economy would have been in a recovery similar to that of 1986 by 2009. 

But a combination of money printing by the Federal Reserve and other central banks, combined with TARP bailouts, and deficit spending by the Obama administration, weakened the U.S. dollar.

The weakened U.S. dollar pulled oil prices out of their natural tail spin and prevented a U.S. economic recovery while also pulling money out of the pockets of average Americans.  

These bipartisan policies helped Republican special interests ensure profits for oil companies, and also caused unjustified support for Green Industry lobbyists to obtain U.S. taxpayer graft from the Democrats.

The prevention of a global recovery, especially in the U.S. and Europe, allows the policymakers to continue to claim that they are in "crisis" mode which will call for more "unprecedented" actions by politicians and central bankers for the ultimate benefit of international bankers.

Instead of trying to prove who would be tougher on Iran, the presidential candidates should address the real issue that actually matters to Americans: Which candidate's foreign and fiscal policies will result in oil prices sustained under $40 a barrel that will lead to a U.S. economic recovery?  

This is a very Presidential issue because the President can immediately call upon OPEC countries to increase oil production or lose military protection and aid from the U.S.  The President can also open dialogue with Iran to negotiate the removal of sanctions in exchange for increased oil production.

Whether Republican or Democrat, all but a handful of Americans would be opposed to fiscal and foreign policies that result in cheaper gas and economic recovery.