Wednesday, February 10, 2010

The Economist discovers the energy crisis

In this post regarding oil and the current account:

The bottom line is that Chinese revaluation would only make a minor dent in the American current account deficit. A potentially bigger problem is oil dependence. American demand for petroleum is relatively inelastic, so rising oil prices will tend to push up oil imports and the deficit.
Basically what Jim Hamilton and others (me?) have been saying for over a year. The depression ends when Government and the Private Secter figure out how to reorganize around oil constraints.

Until we solve the problem, deflation continues. At each step of the deflation a greater proportion of the production can reorient around more expensive oil. Eventually a majority comes to the conclusion that better energy efficiency is the stimulus, not more government.

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