Friday, January 23, 2015

Decline in Oil prices equals a $125 Billion tax cut for American people

American households with oil heat will save an average of $767 this winter. That cash can now be spent on buying a new car---or a washing machine, an electronic gadget, clothes or a few dinners out.

That should boost spending, and thus boost job creation, in a broad array of industries, Goldman Sachs estimates low oil prices could add as much as half a point to U.S. GDP growth, which could push total growth up toward 3.5%--a level that should sustain the broad based job creation we've seen over hte past few months. In the previous two cases in which oil prices fell more than 50% when hte U.S. was not in recession---in 1986 and again in the late 1990s---growth jumped the following year.

end quote from top left of page 34 in Time magazine with Cheap Oil on cover Feb. 2nd 2015.

So, even though Europe, China, Japan and South Korea are losing steam in their economies the U.S. should keep charging ahead for now. However, the U.S. cannot carry the world forward really now because the U.S. is

presently
  1. The United States of America is the world's largest national economy, representing 22.4% of nominal global GDP and 16.6% of global GDP (PPP). The United States' GDP was estimated to be $17.555 trillion as of Q3 2014.

Unless the U.S. economy was about 50% of the world's GDP it likely couldn't carry the whole world forward and help end global recession outside of the U.S. 

However, within the U.S. as long as oil prices remain low we likely will not go into another recession or depression so in this sense we might prevent a worldwide great depression as long as oil prices stay low or keep going down.

No comments: