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Unpredicatbale Oil price makes the global economy unpredictable May 28, 2008

Posted by Bipin Agarwal in Global Economy.

What will be the oil price in next twelve months, or five years. Speculators can make or loose money in he short term but can not predict the price based on any fundamental analysis. Economist can make guess and show up CNBC if it turns out to be true, Ask them to put their money based on their prediction and they will run like there is no tomorrow.

How the economy of the countries will behave? Will oil price subsidy will start consuming the significant foreign reserve if they have it? Will it cause inflation or result into innovation of the alternative energy and re-alignment of the lifestyle to make the economy grow. Only time will tell the answer.

It seems like US is in the strong position so far as the economy is concerned only if it choose to act. There are several things US can do to get back on the growth path and lead the world.
Graceful withdrawal from Iraq – There will be big change in the psychology and current account deficit. Make the US economy more robust.
Sub-Prime bubble – In next twelve month US financial institutions will be in a stronger position and better prepared to focus on growth. You hope that both financial institution and consumer have adjusted to the current reality.
Social Security and Health Care cost – Reduce the benefit, encourage saving and tell public the truth about the situation. American are very forgiving if you tell the truth.
Allow Oil drilling in Alaska – Reduce the oil dependence and reduction in the trade deficit. Remember huge amount of our trade deficit comes from oil import and not from other sources.
Lead alternative energy innovation – US is spending big on alternative energy and has the opportunity to take the lead on world energy solution.
Stop managing dollar – Let market define the dollar strength against the world currency

Which country has the opportunity to lead the next phase of global economy? USA.


Bipin Agarwal


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