Saudi Prince Alwaleed says falling oil prices 'catastrophic'

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FAH1223 said:
Russia supports Assad :evil:

And the Saudis want him gone... so why not weaken his backers
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Deflation is never a good thing.Never.

There are three problems consisting with deflation, two on the demand side and one on the supply.

Firstly, when people expect oil prices or prices in general fall, they will not spend or borrow-Its quite tempting to set on cash and reap positive yields . when you borrow , the money that is repaid is more than the what that loan was originally worth. when the economy is doing okay, which is NOT the case we are in currently, policy makers can simply set the interest rate to zero; but if the economy is not doing well, not even the interest rates set previously mentioned would not be lower enough to get us back to full employment ( reminder, we are ate a rate of 62.7 percent – a data point that has been steadily getting worse since the financial crisis in 2008.)

And in that case, no employment plus no money in economy equal repeated cycle of depression ( Deflation trap).

A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts. While this appears like zero-sum affair because of creditor correspondence, we must keep in mind that debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. So deflation exerts a depressing effect on spending by raising debt burdens because the raising of real debt lead to further deflation

Finally, in a deflationary economy, wages as well as prices often have to fall, thus bringing in the problem of nominal rigidity or sticky prices. this describes a situation in which the nominal prices are resistant to change. What this means is that in general economies don’t manage to have falling wages unless they also have mass unemployment and desperate workers a have no choice but to accept those changes.

and you know we place a trade off between inflation and unemployment, right?

And now you are wondering, what does this have to do with the whole Saudi Arabia/OPEC/ Obama using The economy as a Weapon/ why is lotuseater80 so paranoid thing , right?

Well, on Monday ,Oil prices sank again.The price drop has led to a near free fall in gas prices in the United States. On Monday, the national
adverage of regular gas was $3.20, 9 cents lower than it was a week ago and 14 cents below the price a year ago, according to the AAA motor club. Because oil impacts everything from transportation costs that inflate the price of food and other products to the cost of an airline ticket or heating a home, the high price of this commodity has, to a degree, masked the growing deflation threat.

and we will end up paying for it by getting trust into a deeper depression.
 
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