Ebook The Global Energy Market
Most commentary on the current credit crisis in U.S. and global financial markets has focused on the role of China and other Asian creditors of the United States. In this paper, we focus on the effects of high oil prices on resurgent petrodollar flows, which have contributed to current economic conditions, including rising inflation levels worldwide, very similar to the ones prevailing in the 1970s. Unsustainable levels of U.S. debt, the magnitude of the current credit crisis, and the political and economic difficulty of raising interest rates to reverse those trends, suggest that the global economic and financial system is heading toward a new paradigm. Orderly and smooth transition from the current Dollar, debt, and oil-based paradigm is more desirable than its likely crisis-driven alternative.
The Dollar-dominated international financial system has made it very difficult to resist the temptation of risky inflationary monetary and fiscal policies to postpone or avoid recession. Although the return to a pre-WWII gold standard is not warranted, a multi-currency financial system, with a Bretton-Woods III structure to limit trade imbalances, may impose the required discipline. For the U.S. economy, reduction in its trade deficits and external debt would require increasing savings rates to reduce reliance on foreign savings, accompanied with reduction, especially, in fossil-fuel consumption.
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The Global Energy Market
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