Let's Start With the Basics
Let's Start With the Basics
Let's Start With the Basics
For those of you who did not read my blog last week (shame on you), this is how I ended the post, "The constant in this whole crisis is that when gasoline costs more it has a negative effect on economic growth. Almost all economic activities include the use of oil in one form or another. Consequently, when the price of oil begins getting high, it motivates all of us to start cutting back on many of these activities. What then is the answer? I have no idea."
When I wrote those words, I thought, "Hey, I never said I always have the answer. It is ok to every now and then simply not have a clue."
Since last Thursday however, I have had somewhat of a change of heart. So I began practically the next day doing what I do bestresearch. And while I still do not have all the answers, I think I do have the beginning of a slightly better understanding of the dynamics of how this most recent Middle East crisis is impacting the American family's pocketbook. So let's start with the basics.
A careful analysis of the economic indicators coming out of Western economies today is somewhat confusing. All indicators point to a sluggish but persistent recovery process from the debacle of the worldwide economic disaster of 2007 through 2010 but people are still out of work. Unemployment is still unacceptably high which can mean only one thingthat the numbers are somewhat of a false positive. Core asset values which are those assets that are designed to produce long-term profit growth are not increasing in value. In some cases, they are even decreasing in value, a situation that will not allow sustainable growth on any level.
Regarding banking and financial services, the current set of policies within that sector will ensure banking and financial service profits in the near term which in effect will create wealth for only a very small segment of the American economy. The Obama administration claims it is fighting for the middle class, but is in reality implementing policy that in effect creates wealth for only those at the top of the economic ladder. Meanwhile, the major banks are making money by trading on of all things, U.S. deficits and monetary policy which of course does absolutely nothing for America's either long or short-term economic health.
Maddeningly, the European Union (EU) has done a better job of handling their sovereign debt and central banking policy. Worse, the Europeans management of their own crisis in part is driven by how poorly we have managed ours and so consequently they have benefited from disastrous U.S. policies. A case in point is how the Germans have continued throughout the crisis to support the EU on one hand, but then take a strong industrialist approach regarding their own economy by staying almost completely away from any kind of government stimulus and have thus become one of the best growth economies in the "non-emerging world."
The best guess of some pretty smart American economists is that we probably have no more than two years to make drastic changes to deficits, monetary policy and our tax structure if the economy has any hope of long-term and sustainable growth and that when all is said and done, it is not the school teacher or highway worker that will send the U.S. economy into a ditch of depression.
The recent protests that have already resulted in some government turn-over in the Middle East starts with little economic stability within those countries and because their main commodity is oil, Western economies can probably sustain no more than three or four years of less than stable Middle Eastern economies.
On the flip side, the news is not good for America either. China will continue to grow and due to their internal economic demand, should surpass our economy as the world's top economy within this decade. And as President Obama has stressed over and over the importance of understanding the energy sector, China will continue to operate in unfettered oil, gas and coal utilization operations (not necessarily the best news for the Chinese labor force). The Chinese will also become a major world player in the critical sub-sectors of oil field services (e.g. refining) and more than likely overtake America in this sector-defined technology as well within the next three or four years.
Despite the screaming from the Right and their newly elected charges in both Houses of Congress, the greatest challenge facing the Obama administration today is in fact, the current Middle East crisis. President Obama is walking a fine line between stability and democracy while one of its strongest allies in the Region, the state of Israel, will be in its most vulnerable position since the early seventies because one of the real dangerous outcomes of this current crisis could be that the young people in the street who are idealists and have thus far spearheaded the revolutionary activity throughout the Middle East, could be swept aside by fellow citizens in alliance with radical clerics which might usher in the kind of theological government reminiscent of the Iranian Revolution of 1979. Unemployment, starving, loss of basic freedoms are all ingredients that when mixed together result in revolt so watch closely those countries in the Middle East Region with the highest unemployment and most fundamental needs.
The Middle East Region has consistently posed strategic dilemmas not only to the United States but also other global players which have strategic interests in the Region. The Middle East has even posed strategic dilemmas to nations of the Middle East themselves.
The United States as the lead player in global power calculus and the Superpower with a constant strategic predominance in the Region should not shy away from the political challenges that are unfolding. The United States has in itself the determination and comprehensive power strengths to carefully help shape the Middle East for greater global good.
The Middle East Region being at a "Tipping Point" as the current political upheaval indicates, demands that the United States correctly read the imperatives that suggest we prudently move to being on the right side of history, unlike our behavior towards Iran in 1979.
More next week specifically on what this all means to our pocketbooks...
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