The Logic Of The Oil Price Drop

This year (well at least recent months) focus has been on the European “refugee” crisis and the terror threat from the Islamic State group. And these are important issues. But the most important economic issue is the dramatic drop in oil prices.

What is the cause of that drop? Well, a weakening Chinese economy, and a weakening of the oil producing economies themselves due to the oil price drop do of course contribute.

But the most important cause is the economic logic that Jim Rogers explained here.  (or more accurately that I explained after reading one of his books)

BTW: What about this whole “peak oil” thing?. The oil price drop seems to have made that theory a lot less popular….

The Fed’s Rate Hike

So the Federal Reserve decided to finally end its zero interest rate. This was clearly a “no brainer”. Though the U.S. dollar has strengthened against most currencies (partially because of the fact that people expected this move, and partially because of increased inflationist policies by for example the Swedish Riksbank and the ECB) and overall consumer price inflation has been near zero due to the collapse in oil prices, “core inflation” and the rate of wage increases have increased and BTW so has money supply ,while unemployment has fallen to a low level and the economy has been growing So even if you believe in Keynesian theory you should support it. Krugman however still does not.

Northern European Crisis Economies Recovering

Eurostat today released its monthly unemployment report and it showed that unemployment is generally falling in Europe, with an EU average of 9.3% and a Euro area average of 10.7%. Spain has seen the biggest drop the latest year but is still way above the European average with a 21.6% unemployment rate (down from 23.9% a year ago).

What is more interesting is that though the Southern European crisis economies, especially Greece and Spain but also to a lesser extent also Portugal and Italy are still mired by very high unemployment rates. the economies that used to be crisis economies in Northern Europe, the Baltic States and Ireland now all have unemployment rates below the Euro area average, and everyone except Latvia have a lower rate than the EU average. During the worst part of the slump, unemployment was around 20% (give or take a few percentage points) in all these countries, but now Estonia has an unemployment rate as low as 6%. Lithuania and Ireland both have an unemployment rate of 8.9% and Latvia has an unemployment rate of 9.9%.

It would of course have been better if the unemployment rates had fallen even more, but the point is that these countries have improved in these countries dramatically “despite” having had so-called fiscal austerity and refrained from devaluation