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Shock/Inflation Adv Northwestern

Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

Index 1

Index.......................................................................................................................................................................................................... .....................1
Explanation: Shocks........................................................................................................................................................................................... .............4
Explanation: Inflation............................................................................................................................................................................................. .........5
Shock 1AC [1/6]............................................................................................................................................................................................................ ..6
Shock 1AC [2/6]............................................................................................................................................................................................................ ..7
Shock 1AC [3/6]............................................................................................................................................................................................................ ..8
Shock 1AC [4/6]............................................................................................................................................................................................................ ..9
Shock 1AC [5/6]......................................................................................................................................................................................................... ...10
Shock 1AC [6/6]..................................................................................................................................................................................................... .......11
Uniqueness/Impact: Spikes Coming................................................................................................................................................................. .............12
Uniqueness: Shocks Coming.......................................................................................................................................................................... ...............13
Shocks Coming: Middle East................................................................................................................................................................... .....................14
Brink: Recession........................................................................................................................................................................................................... .16
Internal: Prices kill Economy................................................................................................................................................................... .....................18
Internal: Prices kill Economy................................................................................................................................................................... .....................19
Internal: US Econ K2 Glob Econ.................................................................................................................................................................................. .20
................................................................................................................................................................................................................ .....................20
Impact: Stagflation kills Economy............................................................................................................................................................................... ..21
Impact: Econ/War [1/2].............................................................................................................................................................................. ...................22
Impact: Econ/Enviro/War [2/2].................................................................................................................................................................................... ..23
Stiglitz (mpx author) is awesome!................................................................................................................................................................... ..............24
Impact: Airline [1/2]........................................................................................................................................................................................... ...........25
Impact: Airline [2/2]........................................................................................................................................................................................... ...........26
XT: Shocks Hurt Airlines........................................................................................................................................................................ ......................27
XT: Shocks Hurt Airlines........................................................................................................................................................................ ......................28
XT: Airlines K2 Econ...................................................................................................................................................................................... ..............29
Impact: Econ K2 Environment..................................................................................................................................................................... .................30
XT: Impact: Econ K2 Environment................................................................................................................................................................ ...............31
................................................................................................................................................................................................................ .....................31
Impact: Econ K2 Prolif............................................................................................................................................................................................ ......32
Impact: Econ K2 Heg..................................................................................................................................................................................... ...............33
Impact: Econ K2 Terrorism....................................................................................................................................................................... ....................34
Impact: Econ K2 Democracy...................................................................................................................................................................................... ...35
Impact: Econ K2 Disease............................................................................................................................................................................................... 36
Impact: Econ K2 Poverty....................................................................................................................................................................... .......................37
XT: Impact: Econ K2 Poverty.................................................................................................................................................................. .....................38
A2: Circuit Breakers Solve................................................................................................................................................................................... .........39
A2: SPR Solves.............................................................................................................................................................................................. ...............40
A2: ANWR Solves.................................................................................................................................................................................... ....................41
A2: Shocks good ( renewables)............................................................................................................................................................. ....................42
A2: Economy Resilient............................................................................................................................................................................................... ...43
A2: Shocks Empirically Denied............................................................................................................................................................. .......................44
A2: Econ Collapse Empirically Denied........................................................................................................................................................... ..............45
A2: Alt Causes........................................................................................................................................................................................................... ....46
A2: high growth disproves............................................................................................................................................................................................ .47
A2: Price Increases Only Temporary.............................................................................................................................................................. ...............48
A2: Middle East = Reliable Oil.................................................................................................................................................................. ...................49
A2: Recession Inevitable.................................................................................................................................................................................. .............50
Inflation 1AC [1/7].............................................................................................................................................................................................. ..........51
Inflation 1AC [2/7].............................................................................................................................................................................................. ..........52
Inflation 1AC [3/7].............................................................................................................................................................................................. ..........53
Inflation 1AC [4/7].............................................................................................................................................................................................. ..........54
Inflation 1AC [5/7].............................................................................................................................................................................................. ..........55
Inflation 1AC [6/7].............................................................................................................................................................................................. ..........56
Inflation 1AC [7/7].............................................................................................................................................................................................. ..........57
Uniqueness: Stagflation Now...................................................................................................................................................................... ..................58
Uniqueness: Stagflation Now...................................................................................................................................................................... ..................59
Uniqueness: Stagflation Now...................................................................................................................................................................... ..................60
Uniqueness: Stagflat Killing Glob Econ............................................................................................................................................................. ...........61
Uniqueness: Consumer Spending.................................................................................................................................................................. ................63
XT: Fed Rate Hikes Uniqueness/Link..................................................................................................................................................... ......................64

Zarefsky Juniors 2008 1

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand
Inflation/stagflation distinction............................................................................................................................................................. .............66
Inflation greater than Recession.................................................................................................................................................................. .......67 2
Hyperinflation Coming............................................................................................................................................................................................ ......68
Hyperinflation  Dollar Decline............................................................................................................................................................... ...................69
Solvency: Stagflation................................................................................................................................................................................................... ..70
Solvency: Stagflation................................................................................................................................................................................................... ..71
Solvency: Stagflation................................................................................................................................................................................................... ..72
Impact: Stagflation Kills Economy........................................................................................................................................................................... .....73
Impact: Stagflation kills Economy............................................................................................................................................................................... ..74
Impact: Stagflation kills Economy............................................................................................................................................................................... ..75
Impact: Fed Rate Hikes [1/2].................................................................................................................................................................................... .....76
Impact: Fed Rate Hikes [2/2].................................................................................................................................................................................... .....77
A2: Food Price is alt cause......................................................................................................................................................................... ...................78
A2: Alt Causes (general).............................................................................................................................................................................................. ..79
A2: Fed Will Balance................................................................................................................................................................................ ....................80
A2: Econ Self-Balancing................................................................................................................................................................................... ............81
A2: high consumer spending disproves....................................................................................................................................................... ..................82
A2: Consumer Spending Turn.................................................................................................................................................................... ...................83
A2: Consumer Spending Turn.................................................................................................................................................................... ...................84
Turn: Consumer Spending Bad................................................................................................................................................................................. .....85
XT: Turn: Consumer Spending Bad.......................................................................................................................................................................... .....86
A2 Dollar Decline Good: = recession................................................................................................................................................................ ............87
A2 Dollar Decline Good: A2 trade def..................................................................................................................................................... .....................88
A2 Dollar Decline Good: A2 trade def..................................................................................................................................................... .....................89
A2: Dollar Decline Good: A2 trade def...................................................................................................................................................... ...................90
A2: Dollar Decline Good: A2 trade............................................................................................................................................................. ..................91
A2: China no dump b/c dependence.............................................................................................................................................................. ................92
A2: China no dump (generic)...................................................................................................................................................................... ..................93
Weak Dollar  China Dump...................................................................................................................................................................................... ...94
Weak Dollar  China Dump...................................................................................................................................................................................... ...95
Weak Dollar  Hyperinflation.................................................................................................................................................................................. ....96
Paul Craig Roberts Is Awesome............................................................................................................................................................................... ......97
Brink: China Dump..................................................................................................................................................................................... ..................98
Dollar Decline Crushes Econ: 6 Reasons..................................................................................................................................................................... ..99
Impact: Hegemony................................................................................................................................................................................... ...................100
Impact: XT: Hegemony.............................................................................................................................................................................. .................101
Impact: Dollar Dump (Economy)................................................................................................................................................................. ...............102
US-Sino coop good (5 mpx)........................................................................................................................................................................... .............103
[NEG] Prices Falling.................................................................................................................................................................................... ...............104
[NEG] Prices Falling.................................................................................................................................................................................... ...............105
[NEG] Oil Shocks Gradual................................................................................................................................................................................ ..........106
[NEG] High Prices Don’t Affect Econ..................................................................................................................................................................... ....107
[NEG] SPR Solves Shocks............................................................................................................................................................................ ..............108
[NEG] ANWR Solves Shocks................................................................................................................................................................. ....................109
[NEG] A2: ANWR Not Cheaper............................................................................................................................................................................. .....110
[NEG] Shocks  Alternative Energy....................................................................................................................................................... ...................111
[NEG] Empirically Denied.......................................................................................................................................................................... ................112
[NEG] Economy Resilient.............................................................................................................................................................................. .............113
[NEG] Alt Causes.......................................................................................................................................................................................... ..............114
[NEG] Alt Causes.......................................................................................................................................................................................... ..............115
[NEG] Circuit Breakers Solve................................................................................................................................................................... ..................116
[NEG] Inflation Uniqueness....................................................................................................................................................................... .................117
[NEG] Inflation Uniqueness....................................................................................................................................................................... .................118
[NEG] Fed Balance.............................................................................................................................................................................. .......................119
[NEG] Fed Won’t Raise Rates........................................................................................................................................................................ .............120
[NEG] Fed Won’t Raise Rates........................................................................................................................................................................ .............121
[NEG] Inflation Good............................................................................................................................................................................................... ...122
[NEG] Inflation NOT a concern................................................................................................................................................................ ..................123
[NEG] Alt Causes.............................................................................................................................................................................................. ..........124
[NEG] Consumer Turn............................................................................................................................................................................. ...................125
[NEG] Energy Dependence Untrue........................................................................................................................................................ .....................126
Defense vs China Dollar Dump...................................................................................................................................................................... .............127
China Won’t Dump............................................................................................................................................................................................... .......128
China Won’t Dump............................................................................................................................................................................................... .......129

Zarefsky Juniors 2008 2

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand
Dollar Decline Not Bad............................................................................................................................................................. ......................130
Dollar Decline Inevitable....................................................................................................................................................................... ..........131 3
Impact: Econ Comp K2 Heg..................................................................................................................................................................................... ...132
XT: Impact: Econ Competition............................................................................................................................................................................. .......133
XT: Impact: Econ Competition............................................................................................................................................................................. .......134

Zarefsky Juniors 2008 3

Oil shocks (unexpected price surges) result in economic collapse and a Chinese dollar dump. *NOTE* – The shock advantage may have relevant cards and answers that apply to inflation. an emergency reserve to be used in the event of a natural disaster or a cutoff of production. Market circuit breakers are triggered when the markets suffer too precipitous of a decline. and vice versa. The circuit breakers trigger temporary shut downs of the market. dollar declining. Zarefsky Juniors 2008 4 . Basically. Currently.S. it holds about 700 million barrels. Everything else should be pretty self-explanatory. depending on the severity of the decline. they’ll dump it altogether. Economy impacts were included so you can access the other team’s impacts. That causes bad things.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Explanation: Shocks 4 Pretty simple advantage: our dependence on foreign oil results in a vulernability to market forces. As of right now. SPR stands for Strategic Petroleum Reserve. notably Chinese expansionism and a Sino-American conflict. China owns over a trillion dollars in bonds and stocks. if they see the U.

as in "commodities inflation" or "core inflation". All of the Fed Rates arguments simply refers to the fact that the FRB (Federal Reserve Board) adjusts interest rates in accordance with the economy. Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.S. notably Chinese expansionism and a Sino-American conflict. *NOTE* – The inflation advantage may have relevant cards and answers that apply to shock.e. Also." a condition in which prices increase rapidly as a currency loses its value. Everything else is self-explanatory. neg says rates won’t change. That causes bad things. Basically. the economy impacts for shock (i. That causes economic collapse and a Chinese dollar dump. if they see the U. and vice versa. dollar declining. Zarefsky Juniors 2008 5 . they’ll dump it altogether. Inflation is a rise in the general level of prices of goods and services over time. In economics. It is measured as the percentage rate of change of a price index. Currently.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Explanation: Inflation 5 NOTE: You CANNOT run FRB overreaction with INFLATION/ECON COLLAPSE & DOLLAR DUMP – FRB overreaction CONTRADICTS the other two. econ k2 environment) apply for inflation as well. China owns over a trillion dollars in bonds and stocks. "Inflation" is also sometimes used to refer to a rise in the prices of some specific set of goods or services. Another relatively simple scenario: Current oil prices are fueling domestic inflation. Aff says rate hikes bad. hyperinflation is inflation that is "out of control.

shareholders have been benefiting at the expense of those who work for them (though not CEOs. and preventing recovery. But as Stephen King. which analyses national and international energy supply trends for countries including Canada. or because China's increasing presence in world trade pushes the prices of manufactured goods and labour down. The effect of the rising oil price on America could be even more disturbing.C. since consumers in fear of their jobs are unlikely to carry on splurging.” http://www.75% (on an annual basis) in the second half of this year and the first half of next-a forecast it has revised down by three-quarters of a percentage point. As Mr King puts it. points out. an increased tax burden . To stop profits from falling. Costs are rising for companies as the price of oil and other commodities goes up. may leave nerves not so much frayed as in tatters. Buttonwood thinks. The agency suggested in a news release accompanying the report that the world may be going into "oil shock" for the third time in history -. A prolonged rise in the price of oil and other commodities would make this problem still more acute: America's jobless recovery is likely to stay jobless. "OPEC [the Organization of the Petroleum Exporting Countries] production is at record highs and non-OPEC producers are working at full throttle. but stocks show no unusual build [of supply]. the recent sharp rise in petrol prices-which hit an all-time high this week. Goldman Sachs now thinks the American economy will grow by only 2. If companies do not or cannot pass on the rise in their input costs to consumers. carbon tax that came into effect on Tuesday should stop holding their breath. even turn out lower than that. But there is an indirect effect on consumption. this would have been inflationary: companies simply passed these higher costs on to consumers. The Economist 04 [“Crude arguments: Markets should worry about the surging oil price. perhaps because of excess capacity at home.html?id=7325c853-fbef-49c2-b714-3fb72eac145f] Forget about any relief from high gasoline prices." Oil shocks destroy the economy: hurting consumption. causing inflation.com/vancouversun/news/story. But inflationary pressures are mounting elsewhere in the region. the chief economist at HSBC.pdf] China is already on the verge of overheating.canada. decreasing wages. It might." the report said. says market fundamentals are behind the doubling of oil prices over the past 12 months. That means consumers hoping for a drop in gasoline prices to dampen some of the impact of the B. the International Energy Agency said Tuesday in a study of oil price trends through 2013. of course). and start worrying about global "oil shock. This would eventually kill the recovery. In the past. too.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Shock 1AC [1/6] 6 ADVANTAGE ____ IS SHOCK Scenario 1: The Economy An oil shock is coming. And it comes just as the effects of Mr Bush's (official) tax cuts start to wear off. in effect. consumer confidence will surely follow.” http://www. Zarefsky Juniors 2008 6 . As a result. but it is far from immune to higher prices. For consumers.com/ensign/desantisArticles/2003_800/desantis886/economist." Oil producers around the world are working flat out. in other words. American companies must keep a tight lid on labour costs. The agency.is. And if markets tumble. The rise in the oil price. that link seems to have gone. wholesale prices have been rising much faster than the price at which companies are able to sell their wares. Vancouver Sun 7-2-08 [“Oil shock looms as prices stay high.ftlcomm. but still can't get far enough ahead of demand to cause prices to fall. America may be more efficient than it was."record oil prices in recent months have become a threat to the global economy and social welfare of millions of people. they will either have to cut costs by sacking people (not a policy that finds much favour in China) or accept lower profits. Slower economic growth in turn bodes ill for stockmarkets and corporate-bond markets.

June 12. the only chance a nation has to survive at all is to launch immediate full-bore pre-emptive strikes and try to take out its perceived foes as rapidly and massively as possible.S. escalating it significantly. As the studies showed.whose long-range nuclear missiles (some) can reach the United States -. the stress on nations will have increased the intensity and number of their conflicts. CEO of CTEC Inc. including U.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Shock 1AC [2/6] 7 Economic collapse leads to extinction. to the point where the arsenals of weapons of mass destruction (WMD) now possessed by some 25 nations. “The Unnecessary Energy Crisis: How to Solve it Quickly.attacks Taiwan. Prior to the final economic collapse. under such extreme stress conditions. Bearden 2k. once a few nukes are launched. adversaries and potential adversaries are then compelled to launch on perception of preparations by one's adversary. Retired LTC. Strategic nuclear studies have shown for decades that. suppose a starving North Korea launches nuclear weapons upon Japan and South Korea. in a spasmodic suicidal response. The resulting great Armageddon will destroy civilization as we know it. a great percent of the WMD arsenals that will be unleashed. The real legacy of the MAD concept is this side of the MAD coin that is almost never discussed. rapid escalation to full WMD exchange occurs. Or suppose a desperate China -. As an example. the mutual treaties involved in such scenarios will quickly draw other nations into the conflict.doc] History bears out that desperate nations take desperate actions.org/techpapers/Unnecessary%20 Energy%20Crisis. US Army. at least for many decades. Without effective defense.” http://www. are already on site within the United States itself. In addition to immediate responses. and perhaps most of the biosphere. Today. Zarefsky Juniors 2008 7 . forces there.. are almost certain to be released.cheniere. Director of the Association of Distinguished American Scientists [Tom.

” http://www. those words echoed as an invitation to sell the American currency. The dollar fell to its lowest level against the Canadian dollar since 1950. it will become more difficult to shrink the US trade deficit. But if the dollar-euro exchange rate had remained at the same level that it was last May.pdf] The coincidence of the dollar decline and the rise in the oil price suggests to many observers that the dollar’s decline caused the rise in the price of oil. Mr. New York Times 07 [“Markets and Dollar Sink as Slowdown Worry Increases. the dollar price of oil would have increased less. But as markets opened across Europe.4729. primarily in dollars and dollar-denominated assets — into other currencies to get a better return on its money. If the price of oil had remained at US$65 a barrel. vice chairman of the Standing Committee of the National People's Congress told a conference in Beijing on Wednesday. former chairman of the Council of Economic Advisers and former chief economic advisor to President Ronald Reagan [“The Dollar and the Price of Oil. the US spent US$331 billion on oil imports. and the Swiss franc since 1995.” http://www. said the dollar was "losing its status as the world currency. The euro rose to a new record. Baker Professor of Economics at Harvard. inducing more rapid dollar depreciation. China will dump. Cheng later told reporters he was not saying China would buy more euros and dump dollars.4 trillion.com/2007/11/08/business/08econ.nber. traders said. the cost of the same volume of imports would have been only US$179 billion.08. Xu Jian. Thus. was a jarring signal that suggested China might shift some of its enormous hoard of foreign currency reserves — worth more than $1. since the dollar has fallen relative to other major currencies. Zarefsky Juniors 2008 8 . because the increasing cost of oil imports widens the US’ trade deficit. The dollar is declining because only a more competitive dollar can shrink the US trade deficit to a sustainable level. That is only true to the extent that we think about the price of oil in dollars. "We will favor stronger currencies over weaker ones.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Shock 1AC [3/6] 8 Scenario 2: Dollar Decline Higher oil prices directly result in a declining dollar Feldstein 5-27-08. Martin: president and CEO of the National Bureau of Economic Research. contribute to the decline of the dollar. George F. Last year. however. the British pound since 1981.syndicate. as rising global demand pushes oil prices higher in the years ahead.html?_r=1&hp&oref=slogin] The most immediate trigger for the sell-off in the dollar. which was 47 percent of the US trade deficit of US$708 billion." according to Bloomberg News. before retreating. $1. If the dollar's decline continues. and the trade deficit would have been one-fifth lower. And the dollar price of oil would have gone up 56 percent. The key point here is that the euro price of oil would be the same as it is today. The only effect of the dollar’s decline is to change the price in dollars relative to the price in euros and other currencies." Cheng Siwei.org/feldstein/dollarandpriceofoil. The high and rising price of oil does. and will readjust accordingly.nytimes. A Chinese central bank vice director.

Even the US is a regional but not a global hegemon. The main actors are states that operate in anarchy which simply means that there is no higher authority above them. it would take a long time to re-tool a plant to make more gyros and resupply cruise missiles for battle. The best way to survive in such a system is to be as powerful as possible. Further. Regional hegemons. Finally. The Pentagon source went so far as to say "Even if China was to lose the entire one trillion in cash to a collapse of the Dollar as a currency. they will have succeeded in taking the U.without firing a shot!" A 'classic' Sun Tzu paradigm of victory . the US and China are likely to engage in an intense security competition with considerable potential for war. however.S.China. the only great power in the system. That same message appeared in the famous National Security Strategy issued by the second Bush administration in September 2002.China To Dump One Trillion In US Reserves. . get that military to South Korea and to Japan. Rense 06 [“Report . This document's stance on pre-emptive war generated harsh criticism. but hardly a word of protest greeted the assertion that the US should check rising powers and maintain its commanding position in the global balance of power. itself is not attacked. My theory of international politics says that the mightiest states attempt to establish hegemony in their own region while making sure that no rival great power dominates another region. [ CARD CONTINUES ON NEXT PAGE – NO TEXT DELETED ] Zarefsky Juniors 2008 9 . to include India. John: R. All great powers have some offensive military capability.S. do not want peer competitors.S. allowing the Chinese to act militarily elsewhere in the world. putting tens of millions of Americans on the unemployment line and putting unbearable pressure on the US Government. Cruise Missile guidance systems.S. Mearsheimer 05. assets they know they would lose if a hot war erupted with the US.. Then. China could prevent that plant from shipping to the U. . the U. They are also confident the U.S. Chinese expansionism causes international coalitions balancing against China. I am able to now report the Pentagon views this currency-killing as a cunning military aspect to Chinese plans: The Pentagon says that while China has a 2 Million man army. and once our arsenal of cruise missiles was depleted.S. because it is too hard to project and sustain power around the globe. shortly after the Cold War ended. Their ultimate aim is to be the hegemon. America will be in no position to challenge China. they lack the logistics and heavy lift capability to move that army and supply it. The mightier a state is. In 1991.htm] In speaking with the contact at the Pentagon. relative to potential rivals.S.com/general74/report.S. Military is over-stretched and almost exhausted by its globe trotting Commander-In-Chief. States that gain regional hegemony have a further aim: to prevent other geographical areas from being dominated by other great powers. Russia and Vietnam. off the world stage as any type of effective military or economic power -. in other words. which means that they can hurt each other. Instead. one needs a theory that explains how rising powers are likely to act and how other states will react to them. will join with the US to contain China's power. If China continues its impressive economic growth over the next few decades.” http://www. they want to keep other regions divided among several great powers so that these states will compete with each other. To predict the future in Asia. . and Sino- American conflict. Wendell Harrison Distinguished Service Professor of Political Science at the University of Chicago [“The rise of China will not be peaceful at all. although that is a welcome outcome. The ultimate goal of every great power is to maximise its share of world power and eventually dominate the system. The great powers do not merely strive to be the strongest great power. The best that a state can hope for is to dominate its own back yard. conflict over Taiwan. the American government will be too occupied with troubles at home to do much internationally. could re-tool. Most of China's neighbours.” LEXIS] THE question at hand is simple and profound: will China rise peacefully? My answer is no. The international system has several defining characteristics. economy will fail.the art of fighting. But it is almost impossible for any state to achieve global hegemony in the modern world.S. will never "go nuclear" as long as the U. The Chinese feel they could accomplish certain military goals before the U. if the U. The crippling of the US is a highly desirable military benefit for China at a relatively cheap price since it will leave their human capital and infrastructure assets in place.rense. the only plant in the world which can manufacture the specialized gyros needed for U. They can. They feel that by intentionally destabilizing the dollar. South Korea. attempted to intervene against any Chinese military action.S. without fighting.. the first Bush administration boldly stated that the US was now the most powerful state in the world and planned to remain so. Singapore. The Chinese see that the U. Japan. is now located in. with the U. the less likely it is that another state will attack it.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Shock 1AC [4/6] 9 A Chinese dollar dump causes Chinese expansionism and the decline of US hegemony. no state can know the future intentions of other states with certainty. . economy in shambles and its manufacturing base eroded by a steady stream of manufacturing plants moving out of the US.

What state in its right mind would want other powerful states located in its region? All Chinese surely remember what happened in the 20th century when Japan was powerful and China was weak. and even China. is probably the only way that China will get Taiwan back. The picture I have painted of what is likely to happen if China continues its rise is not a pretty one. In the end. it is hard to imagine the US. Therefore. Taiwan is likely to be an important player in the anti-China balancing coalition. just as the US prefers a militarily weak Canada and Mexico on its borders.is likely to try to dominate Asia the way the US dominates the Western hemisphere. South Korea and Vietnam. Japan. It is clear from the historical record how American policy-makers will react if China attempts to dominate Asia. it is better to be Godzilla than Bambi. Those foreign forces are invariably seen as a potential threat to American security. much the way Britain. China will seek to maximise the power gap between itself and its neighbours. Germany. allowing China to control that large island. which is why China is likely to imitate the US and attempt to become a regional hegemon. go ballistic when other great powers send military forces into the Western hemisphere. the US can be expected to go to great lengths to contain China and ultimately weaken it to the point where it is no longer capable of ruling the roost in Asia. as well as Japan. especially Japan and Russia. Italy. are worried about China's ascendancy and are looking for ways to contain it. Furthermore. given Taiwan's strategic importance for controlling the sea lanes in East Asia. In fact. China will want to make sure that it is so powerful that no state in Asia has the wherewithal to threaten it. I actually find it categorically depressing and wish that I could tell a more optimistic story about the future. they will join an American-led balancing coalition to check China's rise. the US is likely to behave towards China much the way it behaved towards the Soviet Union during the Cold War. joined forces with the US to contain the Soviet Union during the Cold War. An increasingly powerful China is also likely to try to push the US out of Asia. after all. Zarefsky Juniors 2008 10 . I might add. why would a powerful China accept US military forces operating in its back yard? American policy-makers. But the fact is that international politics is a nasty and dangerous business and no amount of goodwill can ameliorate the intense security competition that sets in when an aspiring hegemon appears in Eurasia.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Shock 1AC [5/6] 10 [ CARD CONTINUES FROM PREVIOUS PAGE – NO TEXT DELETED ] China -. much the way the US pushed the European great powers out of the Western hemisphere. The US does not tolerate peer competitors. it is more likely that it will want to dictate the boundaries of acceptable behaviour to neighbouring countries. as Japan did in the 1930s. That is the tragedy of great power politics. We should expect China to come up with its own version of the Monroe Doctrine. there is already substantial evidence that countries such as India. In the anarchic world of international politics. In essence. much the way the US makes it clear to other states in the Americas that it is the boss. It is unlikely that China will pursue military superiority so that it can go on a rampage and conquer other Asian countries. As it demonstrated in the 20th century. Indeed. Instead.whether it remains authoritarian or becomes democratic -. and they too will do whatever they can to prevent it from achieving regional hegemony. would not China's security be better served by pushing the American military out of Asia? Why should we expect the Chinese to act any differently than the US did? Are they more principled than the Americans are? More ethical? Less nationalistic? Less concerned about their survival? They are none of these things. Specifically. China's neighbours are certain to fear its rise as well. it is determined to remain the world's only regional hegemon. which is sure to infuriate China and fuel the security competition between Beijing and Washington. Why would China feel safe with US forces deployed on its doorstep? Following the logic of the Monroe Doctrine. although that is always possible. and Russia. These policy goals make good strategic sense for China. Finally. as well as smaller powers such as Singapore. Gaining regional hegemony. Beijing should want a militarily weak Japan and Russia as its neighbours. France. of course. The same logic should apply to China. Japan.

to a lesser extent. Major-General Pan Zhangqiang. He said military leaders considered the use of nuclear weapons mandatory if the country risked dismemberment as a result of foreign intervention. the US had at the time thought of using nuclear weapons against China to save the US from military defeat. a personal account of the military and political aspects of the conflict and its implications on future US foreign policy. Singapore. commander of the US Eighth Army which fought against the Chinese in the Korean War. With the US distracted. hostilities between India and Pakistan. While the prospect of a nuclear Armaggedon over Taiwan might seem inconceivable. LN] THE high-intensity scenario postulates a cross-strait war escalating into a full-scale war between the US and China.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Shock 1AC [6/6] 11 US-China war will go nuclear and destroy the planet Straits Times 2k [“Regional Fallout: No one gains in war over Taiwan.” Jun 25. president of the military- funded Institute for Strategic Studies. there were strong pressures from the military to drop it. for China puts sovereignty above everything else. Conflict on such a scale would embroil other countries far and near and -. The balance of power in the Middle East may be similarly upset by the likes of Iraq. Beijing also seems prepared to go for the nuclear option. In south Asia. east Asia will be set on fire. If Washington were to conclude that splitting China would better serve its national interests. In his book The Korean War.horror of horrors -.raise the possibility of a nuclear war.truce or a broadened war. Russia may seek to redefine Europe's political landscape. this means South Korea. there is little hope of winning a war against China 50 years later. Gen Ridgeway said that should that come to pass. told a gathering at the Woodrow Wilson International Centre for Scholars in Washington that although the government still abided by that principle. If the US had to resort to nuclear weaponry to defeat China long before the latter acquired a similar capability. it cannot be ruled out entirely. In the region. A Chinese military officer disclosed recently that Beijing was considering a review of its "non first use" principle regarding nuclear weapons. Japan. short of using nuclear weapons. The US estimates that China possesses about 20 nuclear warheads that can destroy major American cities. which could have led to the use of nuclear weapons. we would see the destruction of civilisation. And the conflagration may not end there as opportunistic powers elsewhere may try to overturn the existing world order. There would be no victors in such a war. Zarefsky Juniors 2008 11 . Gen Ridgeway said that US was confronted with two choices in Korea -. Beijing has already told the US and Japan privately that it considers any country providing bases and logistics support to any US forces attacking China as belligerent parties open to its retaliation. each armed with its own nuclear arsenal. could enter a new and dangerous phase. then a full-scale war becomes unavoidable. Will a full-scale Sino-US war lead to a nuclear war? According to General Matthew Ridgeway. the Philippines and. If China were to retaliate.

The reality of sky-high energy costs could mean a darker outlook for the US and global economy. by raising the price of a variety of goods and services.pk/pakistan-news-newspaper-daily-english-online/Business/23-May-2008/Oil-may-deal-blow-to- sputtering-world-economy] The feared super-spike in crude oil prices that appears to be underway could deal a crippling blow to a global economy already reeling from the US housing slump and tight credit. The notion of a quick recovery in the struggling US economy would likely be put in doubt. The jump appeared to fulfill predictions from some analysts of a super-spike that could take oil up as far as $200 a barrel. “The possibility of $150 to $200 per barrel seems increasingly likely over the next six to 24 months. and one of the three largest with Associated Press and Reuters [“Oil may deal blow to sputtering world economy. AFP 5-22-08. and could end up self-correcting as demand softens from weaker economic growth and energy efficiency measures.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Uniqueness/Impact: Spikes Coming 12 Super-spikes in oil prices are coming and will destroy the U. citing “a lack of adequate supply growth” and still-strong demand. and the rest of the world would suffer as well. economist at Yardeni Research.” he said in a research note. Crude futures in May soared past the level of $130 a barrel for the first time.” http://www.com.” Zarefsky Juniors 2008 12 . “A global economic downturn would be the most likely outcome. and global economies. Yet some argue that the surge may be a speculative bubble.S. Goldman Sachs analyst Arjun Murti added to the speculative fever earlier this month with a dire prediction of higher prices.” says Ed Yardeni. analysts say. having more than doubled in the past year.nation. “A super-super spike would most likely put a stake in the heart of global economic growth. led by a longer and deeper recession in the US. Agence France Presse: the oldest news agency in the world.

After all. Its such a tremendous opportunity 2 May 2010. believes environmentalist Rob Hopkins.worldbank." says WBI Senior Economist Yan Wang. a movement pioneered by Hopkins to help communities prepare for "the end of cheap oil"." The price of oil has escalated much more than expected. rising costs. price hikes this time reflect growing energy demand in emerging markets especially China and India. the US government needed something to divert attention from its domestic problems and Irans rapidly developing nuclear programme provided the perfect opportunity. "moderate" demand growth worldwide. hes been expecting this for years This scenario may be fictional. a pattern that is swiftly repeated across the Arab world The oil shortage sees prices rapidly quadruple to nearly $500 a barrel. and OPEC's cuts in production-most recently by 1. "Unlike the previous oil shocks which were largely supply induced.contentMDK:21678343~pagePK:64257043~piPK:437376~theSitePK:4607. above a shop on Fore Street in Totnes. especially in Asia. disappointment that non- OPEC supplies have not increased in larger quantities. "but the volatility is also worsening-fluctuations are more pronounced than they were in the 1990s. at 39. Anti-US riots in Saudia Arabia force its government to follow suit. But the plan quickly starts to unravel. a panelist at the forum's session on whether high and volatile prices are here to stay." says World Bank Senior Energy Economist Shane Streifel.that is.00. then blocks motorways when the government says no. Lane 5-2-08. The resultant panic-buying clears supermarket shelves and thousands are left without food. is barely heated and he wears a thick woollen jumper to keep warm This office is the nerve centre of Transition Network." says Hopkins who. A furious Iran suspends all oil exports to the West. the task manager of the forum. just about remembers it first time round And he is well prepared if we do run out of fuel. south Devon.” http://web. Its message is that once the world hits peak oil production . Zarefsky Juniors 2008 13 . "There is a feeling we are coming to that time again. Streifel says the oil boom of the last few years has been driven by a combination of factors: the loss of oil surplus capacity. when there are no big reserves left to discover and supply is heading downhill - prices will rise uncontrollably. A protest lobby calls for fuel duty to be scrapped.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Uniqueness: Shocks Coming 13 Oil shocks 70s-style are coming." and oil output by the Organization of the Petroleum Exporting Countries (OPEC) has recently edged higher. one person remains calm. as does its ally Russia. With its country deep in recession. Already his office. As fear grips the nation.org/WBSITE/EXTERNAL/NEWS/0.html] Oil prices aren't just rising. So is he gloomy? Not a bit of it. destroying in a stroke the foundations of the worlds economy Demand for oil will cause oil shocks.. The world wakes up to news that the United States Air Force has started bombing Iran. with developing countries. His name is Rob Hopkins and he lives in Totnes. World Bank 3-10-08 [“Volatile Oil Prices Subject of Forum. That's happened even though oil stocks around the world are not "critically low. The price of all basic commodities rocket and stabbings at garages become a daily occurrence in queues for rationed fuel. "It's caught most by surprise. Thomas: former journalism faculty member at Cameron State University and Murray State College [“INTERVIEW ROB HOPKINS ECO WORRIER. but it has echoes of the 1973 oil shock.” LEXIS] The era of cheap oil is over and our economic system is doomed.5 million barrels in 2006 and 2007. International capital flows seeking investment opportunities in the face of a declining dollar have also played an important role. offsetting falling demand in OECD countries.

Zarefsky Juniors 2008 14 . bombings in Afghanistan and an attack on a Yemeni pipeline that took 155.” http://globalwarming.gov/tools/assets/files/0190. Iranian Revolution and Iran/Iraq war sent the price of oil skyrocketing. oil surged to a new record of $97 a barrel amid government predictions of tightening domestic inventories. In the late 1970s. Events in that part of the world have a dramatic impact on oil prices and on our national security. each day carries with it the possibility of major oil supply disruptions leading to economic recession and political or military unrest. with our continuing struggles in Iraq.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Shocks Coming: Middle East 14 Considering the amount of oil located in the Middle East. Iran and Saudi Arabia – and almost two-thirds of known oil reserves are in the Middle East.: Congressman and Chair of the Subcommittee on Telecommunications and the Internet for the House of Representatives [“Oil Shock – Potential for Crisis.000 barrels a day off the markets.pdf] 45 percent of the world’s oil is located in Iraq. Yesterday. And with Al Qaeda threatening to attack Saudi Arabian oil.000 operating centrifuges for enriching uranium. Edward J. Markey 05.house. the Oil Embargo. we are at a high risk for inflation. and with yesterday’s announcement that Iran now has 3.

Vulnerability to Oil Shocks.S. posited “the situation depicted in Oil Shockwave—where a global supply shortfall of less than 4 percent produces a world oil price of $160 per barrel—looks prescient. Bernstein & Co. a Senior Analyst at Sanford C. Zarefsky Juniors 2008 15 . requiring immediate and sustained attention at the highest levels of government" stated Dr. political unrest or additional natural disasters. and global economy.S. is in a uniquely vulnerable position: any intermediary disruption would cause global economic collapse. experts in the fields of national security and economics. The scenario created a shortfall of approximately 3 million barrels of oil from a global market of more than 84 million barrels. resulting in gasoline prices of $5. an oil crisis simulation conducted earlier this summer.74 per gallon and heating oil prices of $5. Robert Gates." The Shockwave scenario included civil unrest in Nigeria.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Brink: Shocks 15 The U. which found that taking less than 4% of oil off the global market due to small incidents of political unrest and terrorism would cause prices to rise dramatically to more than $161 bb. terrorist attacks on energy infrastructure in Alaska and in Saudi Arabia. National Commission on Energy Policy 05 [“Report Highlights U.energycommission. gasoline prices. It also showed that once an oil supply disruption occurs there are few short-term options for protecting the U. Today at a Senate Energy and Natural Resources Committee Hearing on Global Oil Demand and Gasoline Prices." "The threat is real and urgent.S.org/ht/display/ReleaseDetails/i/1552/pid/500] Amid high global oil and U. The report details the findings of Oil Shockwave. The simulation was conducted by former high ranking government officials. who provided expert advice to the simulation.S. John Dowd.57 per gallon.” http://www. and energy industry specialists. "To protect ourselves. we must transcend the narrow interests that have historically stood in the way of a coherent oil security strategy and implement policies that will meaningfully address both the supply and demand aspects of our current oil dilemma. and unpredictable weather conditions. a report released today by Securing America's Future Energy (SAFE) and the National Commission on Energy Policy (NCEP) demonstrates that the United States is vulnerable to much more severe oil shocks should even relatively small amounts of oil be withdrawn from the global market due to terrorism. former Director of Central Intelligence and the Oil ShockWave National Security Advisor. partly due to the lack of spare capacity in global oil production.

His analysis leads to the following conclusions: * This is by far the worst financial crisis since the Great Depression * Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust * Dozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust * Some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly. * The rest of the world will not decouple from the US recession and from the US financial meltdown.has argued that the U. This U. – leading to a risk of a hard landing in these economies. Council on Foreign Relations Roundtable on the International Economy. this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil. while the rest of the world will experience a severe growth slowdown only one step removed from a global recession. auto loans). Member.indymedia. Centre for Economic Policy Research.S. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster and severe recession cycle. Ireland. to commercial real estate. 2008. the well connected and Wall Street. Research Fellow. taxpayers. slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i. managers and creditors at a massive cost to U. * The current U. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank. a global economic and financial analysis firm [“Nouriel Roubini predicts the worst financial crisis since the Great Depression. to muni bonds that will go bust as hundred of municipalities will go bust. * This financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion. it will re-couple big time. like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. Professor of Economics at the Stern School of Business at NYU. to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market. to industrial and commercial loans. National Bureau of Economic Research.K. * In a few years time there will be no major independent broker dealers as their business model (securitization. a fall in commodity prices of the order of 20-30% will further reduce inflationary pressure. student loans. In a typical US recession equity prices fall by an average of 28% relative to the peak. And a similar housing/asset/credit bubble is going bust in other countries – U.S. Thus. ugly and nasty U-shaped recession lasting 12 to 18 months. * But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U. consumer is shopped out. to unsecured consumer credit (credit cards. Spain. Chairman of RGE Monitor. Firms that borrow liquid and short.: slack in goods markets with demand falling below supply will reduce pricing power of firms. the four remaining U. debt burdened and being hammered by falling home prices. * This is not just a subprime mortgage crisis..In a series of recent writings on the RGE Monitor Nouriel Roubini – Chairman of RGE Monitor and Professor of Economics at the NYU Stern School of Business . saving less. July 15.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Brink: Recession 16 We’re on the brink of recession – multiple reasons – this directly affects other economies. energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Zarefsky Juniors 2008 16 . Instead of wiping out shareholders of the two GSEs. replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders.e.S. But this is not a typical US recession. * The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression * Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich. is experiencing its worst financial crisis since the Great Depression and will undergo its worst recession in the last few decades. Also. energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.e. Treasury and the IMF. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (July). Given this sharp global economic slowdown oil.org/item. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures.S. slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures. Research Fellow. So. highly leverage themselves and lend in longer term and illiquid ways (i. etc. Roubini 7-15-08. Italy.php?18440S] New York.S. recession in decades with the U.S. Already 12 major economies are on the way to a recessionary hard landing.S. Nouriel: former senior advisor to the U. * This will be the most severe U. it is rather a severe one associated with a severe financial crisis. to leveraged loans that financed reckless debt-laden LBOs. * Equity prices in the US and abroad will go much deeper in bear territory. we are only barely mid-way in the meltdown of stock markets. it is the continuation of a corrupt system where profits are privatized and losses are socialized. falling jobs and incomes. Portugal.S.” http://winnipeg. falling equity prices. to corporate bonds whose default rate will jump from close to 0% to over 10%. rising inflation and rising oil and energy prices. This will be a long. equity prices will fall by about 40% relative to their peak. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). not the mild 6 month V-shaped recession that the delusional consensus expects.

2008 This factor also applies to world oil. also magnifies price rises in just the same way it intensifies price crashes. DGXVII-Energy. to POGEE Conferece. development of alternate and renewable energy. Vertus Sustineo Asset Management. led by oil. ensuring sufficient financial resources and demand signals for energy transition. world production is tending to stagnate for natural gas and coal. Financial Sense. natural gas. 5/7/08 OIL SHOCK AND ENERGY TRANSITION. as another factor that generates big price swings. May 7. and programming. since Q3 or Q4 2007. Organized and coherent transition however requires high and stable energy prices. seasonal variation of Isupply is now very low. There is one very simple 'bottom line': Energy Transition towards reduced energy intensity in OECD countries. but on the supply side. Increasing prices are not producing an 'instant kick' upwards in supply. In fact. as well as oil. Zarefsky Juniors 2008 17 . resulting in possible price peaks over 150 USD/bbl for this Summer 2008. and coal. due to depletion. exactly at the time prices soar to all- time records ! Energy trading. Chief Strategist. Divn A-Policy. to be sure. European Commission Presentation. New York Former Expert-Policy. due to speculation and greed or the 'poker table and casino-type' basis of commodities and energy trading. Financial Sense. Finally we can cite strong seasonality of demand for oil. when the North hemisphere car and air travel season drives up demand for gasoline and kerosene. and reduction of dependence on all fossil fuels is becoming imperative. by Andrew McKillop. also providing the public opinion and political impetus to act now for energy transition. Karachi.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Solvency: Shocks 17 Shifting to Alternate Energy is the only way to stop oil prices from hiking higher. In other words we have less and less choice. resulting in strong demand for crude oil.

http://uk. threatens to do far more damage to the world economy than the credit crunch.S. 5/23/08 Oil shock threatens lasting changes to U.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Internal: Prices kill Economy 18 Raising oil prices threaten U. It prevents central banks in advanced economies from cutting interest rates to keep their economies growing. Kaletsky 5-23-08.S. Anatole: associate editor of Britain's The Times and a leading commentator on economics [“A crude detachment from the real world. Consumer spending accounts for some two-thirds of U. which this week reached a previously unthinkable $US130 ($135) a barrel (with predictions of $US150 and $US200 soon to come). The economic implications are huge. This would be a disaster far more momentous than the repossession of a few million homes or collapse of a couple of banks. another and much more ominous financial crisis has broken out.S. the boom in oil and commodity prices -. Even if gasoline prices moderate from current levels. the oil and commodity boom threatens a prolonged period of global stagflation. advises Anatole Kaletsky This would be a disaster far more momentous than the repossession of a few million homes JUST as the credit crunch seemed to be passing. Instead of just causing a brief recession. consumers are shunning SUVs. it encourages the governments of developing countries to turn their backs on global markets.reuters. economic activity. Commodity inflation is far more lethal than a credit crunch for two reasons. he said. The escalation of oil prices.could reverse the globalisation process that has delivered 20 years of almost uninterrupted growth to America and Europe and rescued billions of people from extreme poverty in China. For both these reasons.S. companies retrench.if it lasts much longer -. economy already grappling with the worst housing slide since the Great Depression. economy. and employment dips. High oil prices are hurting consumers which will lead to a major recession. That is precisely what is happening now. the lethal combination of high inflation and economic stagnation last seen in the world economy in the 1970s and early '80s. and it points to a dangerous slowdown in the U. Reuters. LEXIS] The doubling of oil prices is being driven by a financial bubble. Even worse. The retail category showing the sharpest gain is gasoline stations. Emily Kaiser and Matt Daily – Analysis. trade restrictions and currency manipulations to protect their citizens from the rising costs of energy and food.” The Australian. evidence of the higher prices. as well as at department stores. and global economic stability. and there is no denying the slowdown.com/article/businessNews/idUKN2320596920080523?pageNumber=3&virtualBrandChannel=0&sp=true Hamilton sees the beginnings of permanent changes in consumer behaviour. Zarefsky Juniors 2008 18 . at least in the US. Trips to suburban strip malls are becoming less popular as Americans balk at driving an extra 10 or 15 miles just to save a dollar or two at a national chain store. When consumers curb spending. resorting instead to price controls. The Commerce Department's retail sales data shows demand down sharply for autos and furniture. India. manufacturing falters. Brazil and many other countries.

The economy risks entering a downward spiral with one set of job losses leading to others. When oil is expensive.htm] This is because higher oil prices affect oil demand and the level of activity in an economy in three ways: 1. The Fed also has less room to direct monetary solely toward policy to maintaining output than it did in 2000: unlike in 2000. the Fed would have to increased the Fed Funds rate more and faster than currently expected by the markets if further oil price shocks were to feed into the inflation rate.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Internal: Prices kill Economy 19 Oil shocks have an impact on the US economy Roubini and Setser 04 (Nouriel Roubini is from Stern School of Business. because construction work is energy intensive. it has been estimated that around half of all the energy used in a wealthy country is necessitated by projects designed to expand the economy. NYU. inflation was already picking up in 2004 . people try to use less of it. and that saves the energy that would have been used to make and deliver the products they would have bought.admittedly from a very low level .org/documents/energy/three_crises. Their minor economies have very little effect on oil consumption. University College. Oxford. manufacturers and retailers will find that their profits suffer and that they have surplus capacity. They consequently have less money to spend. 3. consumers are by many measures already overstretched: consumption growth has been spurred by borrowing in the face of stagnant real incomes for many wage earners. This will result in very large energy savings. With some concerned that the Fed is already “behind the curve” in terms of responding to the recent inflation increase.pdf) The U. High oil prices might dent their confidence.” http://www.stern. Zarefsky Juniors 2008 19 . each causing less energy to be used. They may reduce the amount they drive. They will therefore defer their plans for expansion. or reduce the temperature to which they heat their houses. economy has other sources of vulnerability as well. Higher oil prices also mean that consumers have less money to spend on other things. The people who would have worked on the cancelled projects lose their jobs.prior to the recent surge in oil prices. Indeed. 3 internal links to economic collapse FESA 04. Foundation for the Economics of Stability [“The three crises: oil prices. If higher oil prices reduce consumer demand very much. 2. and these people then spend less too.edu/~nroubini/papers/OilShockRoubiniSetser.S. http://pages.S. Global Economic Governance Programme. and recent inflation news have shown a worrisome pick-up in the inflation rate. when inflation was falling.S. which in turn lead to others still. It also puts other people out of work. This reduces the amount of oil the economy uses because most of the goods and services the consumers would have bought would have required the use of oil for their production and delivery. U. and Brad Setser is Research Associate.nyu. Recent data suggests that a slowdown in consumer spending linked in part to higher oil prices accounted for the fall in the pace of U. a weak dollar and high oil prices limit the Fed’s ability to maneuver. climate change and international debt. growth in the second quarter of 2004.feasta. But that's not all. they buy less. The combination of low pre-existing rates.

Business Columnist for the Globe . the comparable number is 28 percent. "We are the only locomotive of growth. The laws of arithmetic dictate that when you get as big as America. the United States now accounts for 32 percent of the world's economic output. these countries stop selling. America is more critical to the world's economy. According to Economy. a Pennsylvania research firm. Zarefsky Juniors 2008 20 . because it represents a growing slice of the pie. March 31. when we stop buying. In Singapore. In Hong Kong. the measuring stick. exports to the US account for 27 percent of the gross domestic product. for example. In some countries that impact is particularly large. In Mexico.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Internal: US Econ K2 Glob Econ 20 That collapses the global economy Stein 02 (Charles." said Nariman Behravesh. chief economist at DRI-WEFA. Boston Globe . America's dominance is a function both of our strength and the rest of the world's weakness. a Lexington forecasting firm. And growing. has appreciated in value. and because the US dollar. Europe and Japan. The numbers climbed because America grew faster than its competitors. in part. for different reasons.com. the United States is the key player in the world economy. More than any time in the recent past. aren't in a position to make much of a contribution. Simply put. about 25 percent. and 24 percent in 1980. you have a major impact on the other players in the game. Lexis) A coincidence? No way. up from 25 percent in 1990. How did we get here? And what are the implications of our leadership role? The answer to the first question is easier. especially in the 1990s.

stern.The policy response of monetary and fiscal authorities These effects are not trivial: oil shocks have caused and/or contributed to each one of the US and global recessions of the last thirty years.pdf) Oil prices shocks have a stagflationary effect on the macroeconomy of an oil importing country: they slow down the rate of growth (and may even reduce the level of output – i.The dependency of the economy on oil and energy. as oil prices had fallen to a low of around $15 in 1999).S.9% of GDP in 1970. the benefits of the tax go to major oil producers rather than the U. cause a recession) and they lead to an increase in the price level and potentially an increase in the inflation rate. Zarefsky Juniors 2008 21 . The 2003 spike associated with the invasion of Iraq is a good example. higher than the increase in 1990 (40%).nyu. At its close of $43 a barrel on July 30. and equal to the post 73 real price of $43.e. . 2004.edu/~nroubini/papers/OilShockRoubiniSetser.S. for a net oil importer like the United States. the current real price of oil is high – well above the levels during the 1990 and 2000 oil mini-shocks. since the current high oil price reflects both booming Asian demand (China alone is expected to account for roughly 40% of the increase in demand for oil in 2004) and geopolitical risk in the Middle East (the “fear premium” estimated to add between $4 and $8 to current prices).The shock’s persistence. University College. Yet while recent recessions have all been linked to an increase in the price of oil. but it also much bigger and produces comparatively less domestic oil. but much smaller than the increases in 1973 (210%) and 1979-80 (135%). This will depend on many things. . government. The recent 65% increase in oil prices (since the 2002 average price)3 is comparable to the increase in 2000 (60%. An oil price hike acts like a tax on consumption and. http://pages. many as much political as economic. Oxford. Global Economic Governance Programme. and Brad Setser is Research Associate.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Stagflation kills Economy 21 Oil shocks have a stagflationary effect that will eventually collapse the US economy Roubini and Setser 04 (Nouriel Roubini is from Stern School of Business. but it remains well below the peak real oil price of $82 in 1980. The impact on growth and prices of an oil shock depends on many factors: . .The size of the shock. Net oil imports of 1. but from a very low starting point.2% of GDP in 2003 are higher than net oil imports of 0. not all oil price spikes lead to a recession. economy is much less energy intensive than it was in the 1970s. NYU. both in terms of the new real price of oil and the percentage increase in oil prices. The U.

cataclysmic environmental events than a gradual (and therefore manageable) rise in average temperatures. internecine warfare over access to vital resources will become a global phenomenon. Prior to Reid’s address.all.” Resource conflicts of this type are most likely to arise in the developing world. the International Energy Agency’s director for oil markets and emergency preparedness. defense correspondent of The Nation magazine. grain and arable land). Climate change. freeing them of the volatility of the oil markets and related security risks. food and water rather than by conflicts over ideology. Joseph Eugene: former Senior Vice President and Chief Economist of the World Bank. Reid’s speech. This would trigger pitched battles between the survivors of these effects for access to food. serves on the boards of directors of Human Rights Watch. Reid indicated. Reid’s prediction of an upsurge in resource conflict is significant both because of his senior rank and the vehemence of his remarks. With more far- reaching economic markets competing for key resources than ever before. “We should see this as a warning sign.” http://www. “Military confrontation may be triggered by a desperate need for natural resources such as energy. if able to build the infrastructure. The potential economic and geopolitical fallout of allowing the full-blown “oil shock” to hit lies beyond the furthest horizon of what we can envision. What may be a coming age of resource-wars (petroleum. this dependence is an unsustainable economic vulnerability. global consumption rates soaring. chairs the University of Manchester's Brooks World Poverty Institute [“Oil Shock: the Coming Economic Unraveling & How We Can Adjust.net/node/13605] It's official: the era of resource wars is upon us. habitable land and energy supplies. Klare 06. and the Arms Control Association [“The coming resource wars. but the more advanced and affluent countries are not likely to be spared the damaging and destabilizing effects of global climate change.person. is but the most recent expression of a growing trend in strategic circles to view environmental and resource effects—rather than political orientation and ideology—as the most potent source of armed conflict in the decades to come. In a major London address. clean water. recipient of the Nobel Prize in Economics and John Bates Clark Medal. water and energy. and the global security environment deteriorating at the seams. every nation that can must begin to diversify at wartime speed its prevailing energy sourcing options: the US could power its entire consumer and industrial economy with the immense wind resources of the Great Plains. the stage is being set for persistent and worldwide struggles over vital resources. water.” Although not unprecedented. water and energy becoming increasingly scarce and prime agricultural lands turning into deserts. The problem is in part due to a lag in production of new technologies and a reliance on political and military clout to ensure that supplies remain relatively constant. food and energy. “The blunt truth is that the lack of water and agricultural land is a significant contributory factor to the tragic conflict we see unfolding in Darfur. most cited economist in the world as of June 2008 (cited here: http://ideas.” the 2003 report noted. delivered at the prestigious Chatham House in London (Britain’s equivalent of the Council on Foreign Relations). religion or national honor.casavaria.html).Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ/War [1/2] 22 Oil shocks result in resource wars Stiglitz 7-9-08. the most significant expression of this outlook was a report prepared for the U. what the standards are for economic viability.org/top/top. even amid the economic strain of the present situation. energy supplies rapidly disappearing and climate change eradicating valuable farmland.” he declared. Such events could include a substantial increase in global sea levels. viable agricultural land even scarcer”—and this will “make the emergence of violent conflict more rather than less likely. With sea levels rising. Department of Defense by a California-based consulting firm in October 2003. warns “It’s hardly conceivable the world could function without oil”. environmental sustainability and security requirements. Resource wars result in nuclear proliferation and extinction. he indicated. Michael: Five Colleges professor of Peace and World Security Studies.” the report warned that global climate change is more likely to result in sudden. British Defense Secretary John Reid warned that global climate change and dwindling natural resources are combining to increase the likelihood of violent conflict over land. Didier Houssin. For security reasons as much as for environmental reasons. Religious and political strife will not disappear in this scenario. “Violence and disruption stemming from the stresses created by abrupt changes in the climate pose a different type of threat to national security than we are accustomed to today. water. but rather will be channeled into contests over valuable sources of water. “will make scarce resources. with potentially disastrous consequences.energybulletin.” http://www.S. intense storms and hurricanes and continent-wide “dust bowl” effects. Entitled “An Abrupt Climate Change Scenario and Its Implications for United States National Security. means we must move to methods that have no geopolitical fallout built in.repec.” [ CARD CONTINUES ON NEXT PAGE – NO TEXT DELETED ] Zarefsky Juniors 2008 22 . what the goal is. With the world population rising. speed their economic development with state of the art solar farms. The time is now for a major paradigm shift in thought about energy production: how we do it.com/hotspring/2008/07/149/oil-shock-the-coming-economic-unraveling-how-we-can- adjust/] As things stand. while many of the world’s poorest nations could.

“As famine. water and shelter. Maybe so. Zarefsky Juniors 2008 23 . But these scenarios also envision the use of more deadly weapons. these reports make one thing clear: when thinking about the calamitous effects of global climate change. more than anything. And as the 2003 Pentagon report reminds us. starving people killing one another with knives. Environmental perils may soon dominate the world security agenda. raw materials and energy will disappear as well. will escape involvement in these forms of conflict. and energy supply. but rather the disintegration of entire human societies. for access to its grain. eyeing Russia. “many countries’ needs will exceed their carrying capacity”—that is. struggling to feed their populations with a falling supply of food. we. inconclusive war in Iraq and the failed national response to Hurricane Katrina show just how ineffectual such instruments can be when confronted with the harsh realities of an unforgiving world.” he observed. whose population is already in decline. When reading of these nightmarish scenarios. Although we may be somewhat better off than the people in Haiti and Mexico. In particular. producing wholesale starvation. public discussion of global climate change has tended to describe its effects as an environmental problem—as a threat to safe water. True. the wealthier countries will also be caught up in them. mass migrations and recurring conflict over resources. no society. For the most part. By fortifying our borders and sea-shores to keep out unwanted migrants and by fighting around the world for needed oil supplies. however affluent. whether by participating in peacekeeping and humanitarian aid operations. And even if these social disasters will occur primarily in the developing world. and minerals. more and more countries will rely on nuclear power to meet their energy needs—and this “will accelerate nuclear proliferation as countries develop enrichment and reprocessing capabilities to ensure their national security. No doubt there will be many politicians and pundits—especially in this country—who will tout the superiority of the military option. water. will suffer from storms. the greatest danger posed by global climate change is not the degradation of ecosystems per se. flooding and storms can kill us. More importantly. they insist that ideological and religious differences—notably. Ultimately. but it is clearly gaining ground among scientists and thoughtful analysts around the world. their ability to provide the minimum requirements for human survival. and motor vehicles—is the most likely cause of these changes. in fact. or by taking meaningful steps to reduce the risk of cataclysmic climate change.” the 2003 Pentagon report predicted. and could easily prove to be so again. of course. we can maintain our privileged standard of living for longer than other countries that are less well endowed with instruments of power. certain species and so on. We can respond to these predictions in one of two ways: by relying on fortifications and military force to provide some degree of advantage in the global struggle over resources. and weather-related disasters strike due to abrupt climate change. arable soil. Recent studies showing the rapid shrinkage of the polar ice caps. But viewing climate change as an environmental problem fails to do justice to the magnitude of the peril it poses. our vital imports of food. drought and flooding. he expressed concern over the inadequate capacity of poor and unstable countries to cope with the effects of climate change. and the resulting risk of state collapse. we must emphasize its social and political consequences as much as its purely environmental effects. As our overseas trading partners descend into chaos.” It is this prospect.” As oil and natural gas disappears. civil war and mass migration. This shift is due in part to the growing weight of evidence pointing to a significant human role in altering the planet’s basic climate systems. And.” Military superiority may provide an illusion of advantage in the coming struggles over vital resources.” Similar scenarios will be replicated all across the planet. it will be argued. staves and clubs—as was certainly often the case in the past.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ/Enviro/War [2/2] 23 [ CARD CONTINUES FROM PREVIOUS PAGE – NO TEXT DELETED ] Until now. “In this world of warring states. minerals. but it cannot protect us against the ravages of global climate change. that worries John Reid. “Imagine eastern European countries. “constant battles over diminishing resources” will “further reduce [resources] even beyond the climatic effects. power plants. it is easy to conjure up images of desperate.” Although speculative. oil. disease. the clash between values of tolerance and democracy on one hand and extremist forms of Islam on the other—remain the main drivers of international conflict. emphasizing America’s preponderance of strength. too. As Reid’s comments indicate. as those without the means to survival invade or migrate to those with greater abundance—producing endless struggles between resource “haves” and “have-nots. climate change is a potent threat to the environment. the increased frequency of severe hurricanes and a number of other such effects all suggest that dramatic and potentially harmful changes to the global climate have begun to occur. “nuclear arms proliferation is inevitable. the greatest threat imaginable. For the most part. But the grueling. this mode of analysis has failed to command the attention of top American and British policymakers. by fending off unwanted migrants or by fighting for access to overseas supplies of food. the burning of fossil fuels in factories. But Reid’s speech at Chatham House suggests that a major shift in strategic thinking may be under way. temperate forests. and surely will—but so will wars among the survivors of these catastrophes over what remains of food. which is likely to lead to offensive aggression” against countries with a greater stock of vital resources. the accelerated melting of North American glaciers.” the Pentagon report notes. they conclude that human behavior—most importantly. “More than 300 million people in Africa currently lack access to safe water. and energy. Drought. our only hope of a safe and secure future lies in substantially reducing our emissions of greenhouse gases and working with the rest of the world to slow the pace of global climate change. we could establish military outposts in some of these places to ensure the continued flow of critical materials—but the ever-increasing price in blood and treasure required to pay for this will eventually exceed our means and destroy us. This “will create a sense of desperation. As Reid’s speech and the 2003 Pentagon study make clear. and “climate change will worsen this dire situation”—provoking more wars like Darfur. This assessment may not have yet penetrated the White House and other bastions of head-in-the-sand thinking.

He is now University Professor at Columbia University in New York and Chair of Columbia University's Committee on Global Thought. became a full professor at Yale in 1970.columbia.” http://www2. In 2001. Stanford. Stiglitz was born in Gary.edu/faculty/jstiglitz/bio. he was appointed by French President Nicolas Sarkozy to chair a Commission on the Measurement of Economic Performance and Economic Progress. A graduate of Amherst College. In 2008. He then became Chief Economist and Senior Vice-President of the World Bank from 1997-2000. Stiglitz. during the Clinton administration.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Stiglitz (mpx author) is awesome! 24 Prefer our evidence – Stiglitz is THE most qualified source on this subject: multiple warrants. Zarefsky Juniors 2008 24 . and served as CEA chairman from 1995-97.gsb. and in 1979 was awarded the John Bates Clark Award. he was awarded the Nobel Prize in economics for his analyses of markets with asymmetric information. Stiglitz was a member of the Council of Economic Advisers from 1993-95. given biennially by the American Economic Association to the economist under 40 who has made the most significant contribution to the field. Oxford. Columbia University 08 [“Brief Biography of Joseph E. MIT and was the Drummond Professor and a fellow of All Souls College. He has taught at Princeton. and he was a lead author of the 1995 Report of the Intergovernmental Panel on Climate Change. he received his PHD from MIT in 1967. He is also the co-founder and Executive Director of the Initiative for Policy Dialogue at Columbia. Indiana in 1943.cfm] Joseph E. which shared the 2007 Nobel Peace Prize.

with payroll losses of $2.S. Economy and Eliminate. a wholly owned subsidiary of Rich Products Corporation. while airlines will be able to generate only $4 billion in fare increases and incremental fees. frequent intercity air transportation. economy that depends on affordable." said BTC Chairman Kevin Mitchell.americanchronicle. declining business activity.000 passengers per day and thousands of tons of goods.S." The paper points to nine specific impacts of a collapse of the industry: -- Direct Employment... Airline Industry Headed Toward 'Catastrophe'. "As a matter of highest priority. and as the airline fuel crisis intensifies. some will be forced to liquidate.http://www. airlines. The study shows that $130/barrel oil prices will increase yearly airline costs by $30 billion.reuters." the study conducted by AirlineForecasts for BTC states. Economy from Oil-price Trauma in the Airline Industry. Between 30.000 and 75. and reduced tourism are just some of the predictable results from airline liquidations that could happen as early as the second half of 2008 as a direct result of unsustainable fuel prices. and of those. commercial aviation is in full blown crisis and heading toward a catastrophe. elected officials must focus on devising an energy policy that will keep Americans productively traveling and working. Massive job losses. .000 would lose work immediately with just one airline failure.3 billion to $6. http://www. several large and small U.S. "If oil prices stay anywhere near $130/barrel. airlines -.000 to 300. -. weakened American competitiveness." Oil fueled airline liquidation would cripple the US economy Reuters 08 (Oil-Fueled Catastrophe in the Airline Industry Would Cripple U. "The airline industry stimulates so much economic activity -.S. all major legacy airlines will be in default on various debt covenants by the end of 2008 or early 2009. economy. Zarefsky Juniors 2008 25 ." "The runaway price of oil is seriously hurting working families at every level. time-sensitive or perishable cargo. 2008 by AirlineForecasts. less happy and more vulnerable. The report will be presented and discussed during a U.S. The paper. LLC and the Business Travel Coalition. the cabin lights may never come back on for many U. House Small Business Committee hearing scheduled by Chairwoman. The implication of this alarming trend is that several large and small airlines will ultimately end up in bankruptcy.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Airline [1/2] 25 Oil shocks affect the Airline industry causing them to collapse American Chronicle 08 (U. airlines will default on their obligations to creditors beginning at the end of 2008 and early 2009. The almost-full planes of remaining airlines would not be able to absorb much of these volumes.S.would have a wide-ranging impact on many facets of the U. according to a study issued today by AirlineForecasts. "Beyond the Airlines' $2 Can of Coke: Catastrophic Impact on the U. shrinking tax revenues.Indirect Community Impact. Inc. and other economic activity.now a serious possibility -.S. Velazquez (D-NY) for Thursday. "Airline networks are an integral part of the transport grid that supports the U. and without immediate action to bring down fuel costs." expands on the analysis released on June 13.S.much more than many people currently understand. but fast-approaching airline liquidations will cripple the U.. airlines and their passengers facing their darkest future.7 billion. devastated communities. supply chain disruption. we face the economic equivalent of a major blackout later this year or early next. Unlike in a blackout. LLC and BTC and points to the real news about the airlines' fuel problems: how multiple liquidations at legacy U. June 26. Losses would ripple throughout communities given that each airline job creates large numbers of indirect local jobs.S. June 21) At current oil prices.S. leaving us less productive. more isolated. "U. BTC member and President of The Travel Team.S. the risk of major job losses in all travel and tourism sectors and in other airline-dependent industries increases as well. however. June 23) The skyrocketing price of aviation fuel will have devastating implications far beyond new surcharges for checked bags and in- flight beverage services according to a new study prepared by the Business Travel Coalition (BTC).com/article/pressRelease/idUS29898+23-Jun- 2008+PRN20080623. "Airlines move people. Nydia M." According to the paper.S. economy. Not only are U.com/articles/65776. Failure of one large airline would disrupt the travel of 200. Failure of multiple airlines would paralyze the country and our American way of life. but also high-value." stated Jean McDonnell Covelli.

org/techpapers/Unnecessary%20 Energy%20Crisis. including U. the mutual treaties involved in such scenarios will quickly draw other nations into the conflict. Strategic nuclear studies have shown for decades that.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Airline [2/2] 26 Economic collapse leads to extinction. “The Unnecessary Energy Crisis: How to Solve it Quickly.S. The resulting great Armageddon will destroy civilization as we know it. Today. once a few nukes are launched. adversaries and potential adversaries are then compelled to launch on perception of preparations by one's adversary. As an example. Or suppose a desperate China -.attacks Taiwan. Prior to the final economic collapse. are almost certain to be released. escalating it significantly.. US Army.doc] History bears out that desperate nations take desperate actions. the stress on nations will have increased the intensity and number of their conflicts. Director of the Association of Distinguished American Scientists [Tom. In addition to immediate responses. under such extreme stress conditions. at least for many decades. As the studies showed. and perhaps most of the biosphere. Zarefsky Juniors 2008 26 . Without effective defense. Retired LTC.cheniere. CEO of CTEC Inc. rapid escalation to full WMD exchange occurs. the only chance a nation has to survive at all is to launch immediate full-bore pre-emptive strikes and try to take out its perceived foes as rapidly and massively as possible. are already on site within the United States itself. Bearden 2k. forces there. suppose a starving North Korea launches nuclear weapons upon Japan and South Korea. a great percent of the WMD arsenals that will be unleashed.” http://www.whose long-range nuclear missiles (some) can reach the United States -. in a spasmodic suicidal response. The real legacy of the MAD concept is this side of the MAD coin that is almost never discussed. June 12. to the point where the arsenals of weapons of mass destruction (WMD) now possessed by some 25 nations.

Mann said. but “what makes this race an uphill climb is that oil prices continue to rise to previously unthinkable levels – and pushing air travel far beyond affordability for the vast majority of the traveling public”. said Business Travel Coalition chairperson Kevin Mitchell. Carriers were scrambling to raise fares and fees as a way to compensate. the report said. After “turning the emergency sirens on”. Congress should be alerted to the magnitude of the airline industry’s problems and the economic fallout that would result from the failure of one or more major carriers. whose group represents the interests of business travellers. New York. Network airlines may have to “walk away from huge segments of the population” to concentrate on “relatively high. It would be a “less populist industry”.co. — © (2008) The New York Times Zarefsky Juniors 2008 27 . airlines must “cut out flying that does not make sense”.69 to close at 134. the price of oil rose 2. according to a leading industry observer in the US. he said. major carriers probably have enough cash to keep going if they stop the bleeding.” a new report from the Business Travel Coalition said. some perhaps before the end of 2008. Airlines collectively had been able to raise prices by about 3billion annually in recent years. he said. Airline industry expert Robert Mann said the travel coalition’s vision of the future may be a bit too apocalyptic. legislators and others must take measures to “stabilise the patient. But one industry analyst said the report may be too dire.62 a barrel on the New York Mercantile Exchange. Mann said. The fuel-price crisis “is serious” but it was “not unforeseeable”.fare business travellers” and those who have to fly because of a personal emergency. RW Mann & Co of Port Washington. he said. “either were not smart enough or did not care enough” to do so. performs industry analysis and consulting. help airlines’ bottom lines” and “get carriers through the winter”.dispatch. Mann added.” To do that.” Last week. yet most. http://www. but that gain was now being overwhelmed by an industry-wide annual fuel-cost increase of 25bn – only 6bn of which had been ameliorated by hedging.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Shocks Hurt Airlines 27 Oil shocks will lead into liquidation of many Airline carriers Dispatch Online 08 (Oil price shock puts red light on at US airlines. In addition.za/article. and roughly four times as much as in 2000. said Mann.aspx?id=218193. which they would begin to do after Labour Day (the first Monday in September) when carriers were to pare less productive routes from their schedules. “Multiple US airlines are poised to lose the race for survival. June 28) The recent drastic increase in oil prices has created a looming catastrophe for the airline industry that could result in the liquidation of major carriers. fuel-cost surcharges and other fare increases were likely to ground “whole classes of customers” that airlines could no longer support with budget fares. “Still. “Airlines are paying about twice as much for fuel as they were just a year ago. whose firm. with the exception of Southwest Airlines. Carriers have had the option of hedging against fuel-price spikes for years.

The number of people paying for the headphones had dropped and the systems added weight to the aircraft. they are doing better than other network carriers. The increased security checks and restrictions on what can be carried as part of hand baggage is a new irritant that seems difficult to get used to. making what was part of the product now becoming priced support services. US Airways has since announced that it would remove in-flight movie systems from domestic aircraft. But think of all the hundreds now employed to do security checks. The airline is expected to save about Rs 43 crore a year on fuel because of this decision. That did not make sense on two levels. after two consecutive years of losing money. It certainly must have added a per cent to global growth.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Shocks Hurt Airlines 28 Oil shocks are hurting airlines. Secondly. Turnaround measures Major airlines in the US are hurting and searching for turnaround measures. and I have not heard of a single thanks expressed to the terrorists by any of the world leaders. And the hundreds of bottles of liquids (water. blessed with inelastic demand. juice. shampoo. (Can you visualise all the passengers now wheeling one of those small suitcases on board and trying to stuff it in the overhead carriage while you wonder if it will fall on you?) Zarefsky Juniors 2008 28 . There was a time when long distance travel by air meant perquisites like good hot food and metal utensils. and a range of entertainment choices that came with the package. Now. Union agreements undertaken in times of plenty keep costs at a level that does not leave much room to play with. after having collected several hundred dollars from me for the ticket. Although they are underperforming market averages. and the new technologies that have emerged for x-ray scanning of persons and luggage. Beginning last year. Unlike the oil companies which.com/finance/fullstory. increasing fuel use. etc.) that have to be thrown out by absent-minded travellers and re-purchased once they cross the security gates. airlines are in a more competitive environment. they now wanted an additional five for headphones? Air travel isn’t the same anymore. alcoholic drinks. Sify Business News 7-21-08 [“Airlines struggle as air travel loses its charm. they have announced extra charges for checked bags. This has reduced many airlines to desperate measures that have provided fodder for the stand-up comedians of the late-night television shows. $5 (Rs 215) is not the equivalent of five euros (Rs 340). Only what you carry on-board is included in the ticket price.php?id=14719882&cid=20742] The flight purser on my US Airways flight from Philadelphia to Milan announced the name of the movie that would be screened and offered to provide us headphones for $5 or 5 euros. one by one. driven by factors that have had both positive and negative effects on the GNP. some airlines are either giving them up or charging extra for them. Costs of running an airline are soaring as it should at today’s oil prices. continue to make profits like highway thieves in an era of high fuel costs. Perhaps the airlines will allow competing food services (McDonald’s or Taj Catering?) to offer their meals in the flight for a fee and you choose your travel depending on whose food you want! Soaring costs But US Airways has been profitable during the last two years. Firstly. Jet fuel costs have increased over 80 per cent in the last year and are cutting what thin margins were left.” http://sify. These may well emerge as a basis for competition in the future. Air travel has changed in many other ways too. But charging extra for headphones is hardly going to cut it.

" Findings: The top 10 U. perishable food and other goods critical to our economy. including liquidations.11 per gallon.S. according to a study issued today by AirlineForecasts. Nevertheless. it's highly unlikely that they will have the ability to reduce capacity to levels that will allow all of them to survive. already at unsustainable levels. http://www. "U.S.just to cover the dramatic gap-up in fuel costs from 2007." Zarefsky Juniors 2008 29 . were less than $4 billion in 2007. and those who depend on them." the report states. all major legacy airlines will be in default on various debt covenants by the end of 2008 or early 2009. "If oil prices stay anywhere near $130/barrel. leasing companies and travel management companies will have an incentive to support large airlines that provide a stream of value. "With airlines gravely threatened. while airlines will be able to generate only $4 billion in fare increases and incremental fees. LLC and the Business Travel Coalition. the flow of human capital. absent direct policy intervention.S. "Many Members of Congress.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Airlines K2 Econ 29 Airlines are a primary source of transportation – key to economic development American Chronicle 08 (U. the industry will eventually be forced to shrink its seat capacity by 15% to 20%. Industry fares will have to increase at least 20% -. and therefore. continuously spikes into uncharted territory. Pa. some will be forced to liquidate. "But given the competitive situation they face. so is our economic well-being. are watching with growing alarm as their cash reserves fall precipitously toward zero as the price of oil. the likelihood is several airlines will fail. However. critical to national and local economic development." the report warns. federal regulatory officials. The upshot of higher fares is less traffic." "Stabilizing this ailing industry must become a national policy priority. and moreover. "These airlines have never faced a darker future. state legislators and Governors have yet to fully appreciate the devastating impact an oil-crippled airline industry will wreak on our culture and our national and local economies.across the board and on average -. This is not possible given the level of uneconomic seat capacity in the system today. commercial aviation is in full blown crisis and heading toward a catastrophe. Instead." "Airlines are the primary source of inter-city transportation. several large and small U. there is no guarantee that a transition to a smaller. the industry is headed toward a massive failure that will result in more bankruptcies. Fuel hedge benefits could offset $5 to $6 billion of the increased fuel costs." the study says. The implication of this alarming trend is that several large and small airlines will ultimately end up in bankruptcy. The group could lose as much as $9 billion over the next 12 months if the current range of oil prices holds. when one-time reorganization charges are removed.S." "Brand name legacy carriers that we and American communities from coast to coast have depended upon for decades to provide us with affordable.com/articles/65776. suppliers such as aircraft manufacturers. toward a date with bankruptcy and liquidation. -. and of those. the only year of profitability this decade.americanchronicle. "The U. Airline Industry Headed Toward 'Catastrophe'." the study conducted by AirlineForecasts for BTC states." the study says. airlines will spend almost $25 billion in higher fuel costs this year over last year when jet fuel averaged $2. without a swift reduction in the price of fuel.At current oil prices. frequent air service are running out of cash. "Airlines can attempt to radically shrink the industry. more expensive (for the consumer) airline industry would be successful and sustainable.S. airlines will default on their obligations to creditors beginning at the end of 2008 and early 2009. movement of just-in- time parts for manufacturing." the study states. and given a reasonable estimate of price elasticity. Airlines have the ability to raise some cash. The study shows that $130/barrel oil prices will increase yearly airline costs by $30 billion. airlines. June 21) WASHINGTON and RADNOR. Earnings for the group.

David N. Utilitarian value is the direct utility humans draw from plants and animals.) No species has ever dominated its fellow species as man has. "The more complex the ecosystem." n79 By causing widespread extinctions. a large portion of basic scientific research would be impossible. so does the risk of ecosystem failure.which if cut anywhere breaks down as a whole. the more successfully it can resist a stress. harelip sucker. Yet. -. Theoretically.org/barry140108. the world's biological diversity generally has decreased. Ohio State University. United States Army.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ K2 Environment 30 Economic collapse destroys the environment. .countercurrents. This essay explores the possibility that from a biocentric viewpoint of needs for long-term global ecological. the effect of each new extinction on the remaining species increases dramatically. and biodegradation. n70 oxygen production.because their extirpations could affect a directly useful species negatively. Plants and animals also provide additional ecological services -- pollution control. they may be critical in an indirect role. Both trends carry serious future implications.M.The main premise of species preservation is that diversity is better than simplicity. ignoring their deep connection. forests. J. humans live off of other species. -. In most cases. and then humans also would become extinct. Biologically diverse ecosystems are characterized by a large number of specialist species.Like all animal life. Nonetheless. Diner 94 (Diner. each new animal or plant extinction. the number of species could decline to the point at which the ecosystem fails. Perpetual economic growth. Lexis-Nexis. In addition to food. In a closely interconnected ecosystem. . it becomes more difficult and less likely that policy sufficient to ensure global ecological sustainability will be embraced. n72 Without plants and animals. No one knows how many [*171] species the world needs to support human life.like a net. 143 Mil.over the plants and animals of the world. Many. n67 In past mass extinction episodes. Like a mechanic removing. Economic growth is a deadly disease upon the Earth. Holiday shopping numbers are covered by media in the same breath as Arctic ice melt. population. These ecosystems inherently are more stable than less diverse systems.would not be sound policy. B. species offer many direct and indirect benefits to mankind.and new species replaced the old. and necessary climate and other ecological policies. 161. Exponential economic growth destroys ecosystems and pushes the biosphere closer to failure. Scientific and Utilitarian Value. or Dismal Swamp southeastern shrew n74 could save mankind may be difficult for some. Rev. College of Law. n75 Moreover. The growth machine has pushed the planet well beyond its ecological carrying capacity.D. if not most. humans have artificially simplified many ecosystems. could cause total ecosystem collapse and human extinction. -. Recipient. “The Army and the Endangered Species Act: Who’s Endangering Whom?” Military Law Review. Zarefsky Juniors 2008 30 . with capitalism as its most virulent strain. and flood control are prime benefits certain species provide to man. 1994. Throw-away consumption and explosive population growth are made possible by using up fossil fuels and destroying ecosystems. For most of history. Pest. To accept that the snail darter. unbranched circle of threads -. Environmental degradation results in extinction. are fundamentally incompatible. and the dust bowl conditions of the 1930s in the United States are relatively mild examples of what might be expected if this trend continues. and to find out -. whereby production is right-sized to not diminish natural capital. species are useless to man in a direct utilitarian sense. United States Army. the loss of a species affects other species dependent on it. Recipient.by allowing certain species to become extinct -. This trend occurs within ecosystems by reducing the number of species. n69 erosion.Ecological value is the value that species have in maintaining the environment. and mankind may someday desperately need the species that it is exterminating today. it would be better for the economic collapse to come now rather than later. and exploit nature for the maximum benefit of the human race. n68 2. Barry 1-14-08. The Judge Advocate General’s School. . one by one. the rivets from an aircraft's wings.S. can only lead to human extinction and an end to complex life. Ecological Value. Glen: President and Founder of Ecological Internet. Global ecological sustainability depends critically upon establishing a steady state economy. and yet the world moved forward. people have assumed the God-like power of life and death -- extinction or survival -.htm] Humanity and the Earth are faced with an enormous conundrum -. As biologic simplicity increases. such a fabric can resist collapse better than a simple. economic and social sustainability.” http://www. ecognized internationally by the environmental movement as a leading public intellectual and global visionary committed to communicating the severity of global ecological crises [“Economic Collapse And Global Ecology. with all its dimly perceived and intertwined affects. n71 3. Yet this growth is the primary factor driving greenhouse gas emissions and other environmental ills.sufficient climate policies enjoy political support only in times of rapid economic growth. as many as ninety percent of the existing species perished. Action on coal. [hu]mankind may be edging closer to the abyss. United States. and within species by reducing the number of individuals. mankind pursued this domination with a single minded determination to master the world. like the one now looming in the constrained. filling narrow ecological niches. Winter. The spreading Sahara Desert in Africa. LL. as the number of species decline. L.primarily fossil fuel industries and their bought oligarchy -- successfully resist futures not dependent upon their deadly products. renewable energy and emission reductions could be taken now at net benefit to the economy. So why should the world be concerned now? The prime reason is the world's survival. n73 Only a fraction of the [*172] earth's species have been examined. Ohio State University.Scientific value is the use of species for research into the physical processes of the world. Humanity has proven itself unwilling and unable to address climate change and other environmental threats with necessary haste and ambition. Whole industries like coal and natural forest logging will be eliminated even as new opportunities emerge in solar energy and environmental restoration. n76 4. At some point. Each new extinction increases the risk of disaster. sewage treatment. Biological Diversity. the losers -. in which each knot is connected to others by several strands. and unless With every economic downturn. tame the wilderness. n77 As the current mass extinction has progressed. Judge Advocate’s General’s Corps.

"we need a sound economy on a global basis.be it industrial. The reason for this is quite simple: Such a nation can now afford technologies such as catalytic converters and sewage systems that treat and eliminate a variety of wastes. The following examples will illustrate my point. once a nation's per capita income rises to about $4.zey. studies show that. According to Norio Yamamoto." He claims that the pollution problems of poorer regions such as eastern Europe can be traced largely to their economic woes. or technological .centers around its negative consequences. I contend that growth invariably provides solutions to any problems it introduces. research director of the Mitsubishi Research Institute. A recurring criticism of growth . However." Zarefsky Juniors 2008 31 .com/Featured_2. “The Macroindustrial Era: A New Age of Abundance and Prosperity”. In fact.000 (in 1993 dollars). http://www. in order to ensure environmental safety. it produces less of some pollutants per capita. "We consider any kind of environmental damage to result from mismanagement of the economy.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Impact: Econ K2 Environment 31 Economic Growth is key to environmental protection – on balance economic strength is good for the environment Zey 97 (Michael.Although economic growth can initially lead to such problems as pollution and waste. the pendulum begins to swing back toward cleaner air and water.htm) This brings me to one of my major points about the necessity of growth. A good example of this is the tendency of economic and industrial growth to generate pollution. Professor of Management at Montclair State University. The Futurist. after a country achieves a certain level of prosperity. economic. Hence he concludes that. March/April.

and Resources Division of the Institute for Defense Analyses [Survival. former economics columnist of The New York Times [“Dangers of Slow Growth. Summer 2002. no. With most. and more liberal and open economies and societies. but it aggravates all of them. vol. Unless nuclear proliferation is stopped. Missile Defence and American Ambitions”] In sum.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ K2 Prolif 32 Declining economies result in prolif. the world may even be a more polite place than it is today. we are headed toward a world that will mirror the American Wild West of the late 1800s. the current economic slump has fanned the fires of nationalist ethnic and religious hatred around the world.org/19930201faessay5926/leonard-silk/dangers-of-slow-growth. the production and trafficking of drugs. and Cambodias- or worse. sickness. and that such shoot-outs will have a substantial probability of escalating to the maximum destruction possible with the weapons at hand.” From Foreign Affairs. aids and other plagues. national and collective security. creating more Iraqs. there are strong economic pressures on arms-producing nations to maintain high levels of military production and to sell weapons. widespread proliferation is likely to lead to an occasional shoot-out with nuclear weapons. But economic growth-and growth alone-creates the additional resources that make it possible to achieve such fundamental goals as higher living standards.html] In the absence of human and capital resources to expanding civilian industries. Zarefsky Juniors 2008 32 . 2. They also undermine efforts to deal with such global problems as environmental pollution. 44. Like the great Depression. a healthier environment. crimes. Proliferation leads to nuclear war Utgoff 02. America and the World 1992/3. Somalias. wherever buyers can be found. http://www. but every once in a while we will all gather on a hill to bury the bodies of dead cities or even whole nations. Without a revival of national economies and the global. Silk 93. pp. 85–102 “Proliferation. if not all. Leonard: Distinguished Professor of Economics at Pace University and Senior Research Fellow at the Ralph Bunche Institute on the United Nations at the Graduate Center. Deputy Director of the Strategy. and in turn they feed back on economic development. Forces.foreignaffairs. the production and proliferation of weapons will continue. City University of New York. nations wearing nuclear ‘six-shooters’ on their hips. both conventional and dual-use nuclear technology. Economic hardship is not the only cause of these social and political pathologies. Growth will not solve all those problems by itself. Yugoslavias.

threats of regional hegemony by renegade states. Finally. As the United States weakened.democracy.S. Defense Analyst at RAND (Zalmay. "Losing the Moment? The United States and the World After the Cold War" The Washington Quarterly. The result is global nuclear exchange Khalilzad 95. No.S. 18. and the rule of law. Defense Analyst at RAND (Zalmay. economy declines seriously. others would try to fill the vacuum. such as nuclear proliferation. leadership would therefore be more conducive to global stability than a bipolar or a multipolar balance of power system. Second. Such a vision is desirable not as an end in itself. First.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ K2 Heg 33 Collapse of the U. become in-ward looking. U. Pg. enabling the United States and the world to avoid another global cold or hot war and all the attendant dangers. the global environment would be more open and more receptive to American values -. U. Vol. RETHINKING GRAND STRATEGY.S. On balance. the United States would seek to retain global leadership and to preclude the rise of a global rival or a return to multipolarity for the indefinite future. "Losing the Moment? The United States and the World After the Cold War" The Washington Quarterly. 84) <Under the third option. 18. including a global nuclear exchange. and abandon more and more of its external interests. Vol. leadership would help preclude the rise of another hostile global rival. free markets. No. 2. Pg.S. Zarefsky Juniors 2008 33 . this is the best long-term guiding principle and vision. In such an envioronment. and low-level conflicts. but because a world in which the United States exercises leadership would have tremendous advantages. 2. RETHINKING GRAND STRATEGY. the domestic economic and political base for global leadership would diminish and the United States would probably incrementally withdraw from the world. economy would kill heg. such a world would have a better chance of dealing cooperatively with the world's major problems. 84) The United States is unlikely to preserve its military and technological dominance if the U. Khalilzad 95.

that describes terrorist activities as being initiated by groups that are unhappy with the current economic status quo. Unlike their historical counterparts. we develop and explore the implications of an economic model that links the incidence of terrorism in a country to the economic circumstances facing that country. Bloomberg and Hess 02. economic contractions (i.pdf] In this paper. Israel and its citizens. Likewise. B. recessions) can provide the spark for increased probabilities of terrorist activities. an alternative environment can emerge where access to economic resources is more abundant and terrorism is reduced. Such groups with limited access to opportunity may find it rational to engage in terrorist activities. the religionization of politics. We briefly sketch out a theory. LEXIS] Last week's brutal suicide bombings in Baghdad and Jerusalem have once again illustrated dramatically that the international community failed.claremontmckenna. therefore. Our empirical results are consistent with the theory. in the spirit of Tornell (1998). contemporary terrorists have introduced a new scale of violence in terms of conventional and unconventional threats and impact. despite the collapse of the Oslo Agreements of 1993 and numerous acts of terrorism triggered by the second intifada that began almost three years ago. Brock Bloomberg: Economics Department Claremont McKenna College.” The Washington Times. to understand the magnitude and implications of the terrorist threats to the very survival of civilization itself. Americans were stunned by the unprecedented tragedy of 19 al Qaeda terrorists striking a devastating blow at the center of the nation's commercial and military powers. thus far at least. The result is then a pattern of reduced economic activity and increased terrorism. that on September 11. regional and global security concerns.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ K2 Terrorism 34 Economic decline results in terrorism. weak punishment of terrorists. yet unable to bring about drastic political and institutional changes that can improve their situation. Even the United States and Israel have for decades tended to regard terrorism as a mere tactical nuisance or irritant rather than a critical strategic challenge to their national security concerns. as well as scores of other countries affected by the universal nightmare of modern terrorism surprised by new terrorist "surprises"? There are many reasons. It is not surprising. In contrast. 8-28-03. including misunderstanding of the manifold specific factors that contribute to terrorism's expansion.e. Greg Hess: Vice President for Academic Affairs and Dean of the Faculty/Russell S. http://www. professor and director of the Inter-University for Terrorism Studies in Israel and the United States [“Terrorism myths and realities. S. nuclear and cyber] with its serious implications concerning national. such as lack of a universal definition of terrorism. biological. and the exploitation of the media by terrorist propaganda and psychological warfare. high income countries.” August 2002. radiological. chemical. are still "shocked" by each suicide attack at a time of intensive diplomatic efforts to revive the moribund peace process through the now revoked cease-fire arrangements [hudna].edu/econ/papers/2002-14. Bock Chair of Public Economics and Taxation [“Terrorism From Within: An Economic Model of Terrorism. 2001. ALEXANDER 2k: Yonah. We find that for democratic. Terrorism causes extinction.g. The internationalization and brutalization of current and future terrorism make it clear we have entered an Age of Super Terrorism [e. Zarefsky Juniors 2008 34 . double standards of morality. Why are the United States and Israel.

and moderate-income groups and loans to small business are based on this principle.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ K2 Democracy 35 Economic democracy is one of the U. Absent democracy. pp. Larry: senior research fellow at the Hoover Institution at Stanford University [“Promoting Democracy. saner.com/atimes/Global_Economy/JG22Dj06. They do not build weapons of mass destruction to threaten one another. and the rule of law within their own borders. Zarefsky Juniors 2008 35 . rights of property.atimes. and offer more stable climates for investment. much like air and water. Because they answer to their own citizens. not just the temporary leashing of dictatorships or incremental progress on arms control. Government loan guarantees for students and home mortgages for low. interest in fostering democracy.’s principal methods of democracy. open. 1992). every impact is more likely. They are more likely to honor international treaties and value legal obligations since their openness makes it much more difficult to breach them in secret. this principle of economic democracy is overshadowed by free- market extremism to push the nation's economy into extended depressions. Yet from time to time. Promoting democracy must therefore be at the heart of America’s global vision. democracies are more environmentally responsible. Precisely because they respect civil liberties. A more democratic world would be a safer.S.” http://www.” Foreign Policy. 25-46. and should be equally accessible to all. A truly new world order means a qualitatively different world. DIAMOND 92. and more prosperous world for the United States. and trade.S. Asia Times 7-22-08 [“Debt capitalism self-destructs. Democracy should be the central focus—the defining feature— of U. foreign policy. 87 (Summer. not just to the rich. democracies are the only reliable foundation on which to build a new world order of security and prosperity. The experience of this century bears important lessons. Economic democracy has been the core strength of US political democracy. and enduring trading partners. JSTOR] The impact on democracies demonstrates the fallacy in thinking that “real” interests can be distinguished from the U. Democratic countries do not go to war with one another or sponsor terrorism against other democracies. Democratic countries are more reliable. terrorism.html] Deeply rooted in US political culture is the view that credit is a financial public utility.S. No.

This pattern has been repeated with each successive advance in antibiotics as the targeted bacteria evolves to outwit the treatment. New diseases are not just a problem of the poor. In fact. may come back to haunt us. coli) is one of the common bacteria that people carry in their intestines. it was inhaled from air conditioning units. and the treatments that are being developed have to take account of that. and all the others described here. a dangerous form of E.htm] Fifty years ago. and some predicted chaos and war in the wake of AIDS.> Specifically – mutated and adapted old diseases are the most likely scenario for extinction SOUDEN 2k. Modern life. As a result of clearing forests. and as a result penicillin has been rendered ineffectual . The situation has been worsened by the over-prescription of antibiotics for all manner of ailments. The UN conference on AIDS in Africa.pdf) <The United States was able reduce deaths from AIDS because it both was wealthy and had the human capital to address this disease. ticks that usually fed on mice and deer began to feed off humans and passed them a bacterium. The resulting Lyme disease (named after the Connecticut town where it was first identified) has since been found in many different parts of the world. “Killer Diseases. And indeed such subsidies are exactly what the worldwide effort to contain HIV/AIDS hopes to mobilize. Today there is a whole new breed of bacteria that cause 'old' diseases (such as pneumonia. D&D Foundation Julian Simon Fellow at the Political Economy Research Center. AIDS is the number one killer virus and has the potential to cripple the human race. Legionella lives in a film of scum on the surface of water. in dark. when penicillin was fairly new. consultant to the Cambridge Group for the History of Population and Social Structure [David. created the environment for new disease by radically changing the wooded environment in inhabited parts of the world.org/pubs/pas/pa447. Its origins are obscure. The source of infection was eventually traced to cooked meats supplied by a butcher. charities.. has emerged due to evolutionary processes and through the unregulated use of antibiotics for livestock. dysentery and tuberculosis) that are now resistant to traditional antibiotics.” Factsheet.. unless it is subsidized by the governments. is available worldwide. Humans again. Its spread has also been encouraged by extensive international travel. of actually putting those technologies to use. and it has even been found in showers. http://darrendixon. particularly increased mobility. equally important. Cambridge. former Research Fellow in History at Emmanuel College. some experts believe it will be a virus that leads to the eventual extinction of the human race.com/killerdiseases. http://www. is facilitating the spread of viruses. we thought were long gone. the greater the likelihood not only of creating new technologies but. and by the extensive use of antibiotics in animals intended for human consumption. Although many air conditioning systems have been redesigned to prevent further infection. there may be yet another dangerous micro-organism waiting in the wings. Over time however. or through contaminated blood products. sexually transmitted diseases. In1976 a strange new disease emerged affecting members of the American Legion who had attended a convention in a grand Philadelphia hotel.but the consequences of that adaptation are that mutations of old diseases. It causes similar symptoms to rheumatoid arthritis and can cause long-term disability and even death. It is most commonly transmitted sexually. There have been serious outbreaks in Britain. No new disease has gripped the imagination and the world to a greater extent than AIDS and HIV (the human immuno-deficiency virus that is associated with it . the USA and elsewhere: in 1997. a Scottish outbreak infected hundreds. It has the capacity to mutate and evolve into new forms. or even industries of the richer nations. “The Globalization of Human Well-Being”. unwittingly. bacteria have absorbed part of penicillin's genetic material into their DNA. highlighted the bleak future for many African countries. legionella still lurks. and killed at least twenty people. Nature's ability to adapt is amazing . Scientists believe that it originated from an isolated and rare virus in Africa.. The disease has been identified in many places since. August 22. Few were hopeful.supanet. held in July 2000. see vaccines List . especially the very young and the elderly. The bacterium Eschericia coli (E. coli (0157:H7). Basic food hygiene precautions are usually all that is required to prevent the spread of infection. until finally a rare type of bacterium . Its effects are at their starkest in many of the poorest parts of Africa. some emerge specifically because of our wealthy western society.curing only 10 per cent of cases today. But despite the fact that the necessary technology now exists and. particularly in New England in the USA. the varying degrees of success in dealing with the problem.cato. In the case of the first outbreak. However. Exhaustive tests failed to find the cause. war and particularly by sexual liberation and intravenous drug-abuse. which exploded on to the world scene in the 1980s. CATO Policy Analysis #447. and the potential loss of a whole generation. Zarefsky Juniors 2008 36 . that causes intestinal haemorrhaging. similar improvements have yet to occur in Sub-Saharan countries because they cannot afford the cost of treatment. although usually as an isolated incident rather than mass infection. The golden age of conquering disease may be drawing to an end. with extremely low life expectancies. in theory. providing no benefit to humanity. And unless technologies are used. they will sit as curios on a shelf.(WRONGLY. where poverty means that drugs to control infection are not available and a lack of effective sex education hastens its spread. Ed).Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ K2 Disease 36 Economic collapse fuels the spread of diseases Goklany 02 (Indur M. This is as clear an illustration as any that the greater the economic resources. Yet the recent history of life-threatening and lethal diseases suggests that even if we conquer this disease. But of all these new and old diseases. AIDS poses the greatest threat. by patients not finishing their antibiotics. Of those who contract it one in every ten will die. it could cure almost every case of infection caused by the common staphylococcus bacteria. oxygen deficient places.legionella - was discovered.

“Ending Mass Poverty”. circular. This intense self-hatred was often manifested in familial violence as when the husband beats the wife.nl/TCCDMAJ/quietdv.” http://www. about 75 percent of humanity lived on less than a dollar per day.mumia.htm] "[E]very fifteen years. as the "Divine Right of Kings" to the spoils of class battle. or genocide on the weak and poor every year of every decade. two to three times as many people die from poverty throughout the world as were killed by the Nazi genocide of the Jews over a six-year period. and un-understood by the very folks who suffer in its grips. September. reductions in poverty have been uneven. Even a short-term view confirms that the recent acceleration of growth in many developing countries has reduced poverty. the equivalent of an ongoing. former Black Panther Party activist [“A Quiet And Deadly Violence. http://www.which consists of personal choice. Director of the CATO Institute’s Project on Global Economic Liberty. as omnipotent as death. yet ever present. however. in effect. the wife smacks the son. buried. Despite that progress. by church and crown. thermonuclear war. much of that violence became internalized. Living standards tripled in Europe and quadrupled in the United States in that century. Vásquez writes that the higher the degree of economic freedom -." says economist Ian Vásquez. unacknowledged by the corporate media. turned back on the Self. today about 20 percent live under that amount. p. Taking the long view. in a society based on the priority of wealth. throughout the world. Scholars Frances Fox-Piven and Richard A Cloward wrote. growth has also reduced poverty in other parts of the world: in 1820. improving at an even faster pace in the next 100 years. as if something is inherently wrong with themselves. the percentage of poor people in the developing world fell from 29 to 24 percent. in The New Class War (Pantheon. The historical record is clear: the single.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ K2 Poverty 37 Growth solves Poverty Vásquez 2001 (Ian. protection of private property. In the struggles over the commons in Europe.org/research/articles/vas- 0109. The systemic impacts of poverty are the same as that of a nuclear war. Western countries began discovering this around 1820 when they broke with the historical norm of low growth and initiated an era of dramatic advances in material well-being. This vicious. on the average. as many people die because of relative poverty as would be killed in a nuclear war that caused 232 million deaths. measured the same way. It is found in every country. in a thoroughly capitalist society. who argues that redistribution or traditional poverty reduction programs have done little to relieve poverty. the number of poor people has remained stubbornly high at around 1. In the past 10 years.cato. feeds on the spectacular and more common forms of violence that the system makes damn sure -. submerged beneath the sands of history.that we can recognize and must react to it. those who own nothing are taught to loathe themselves. Economic growth thus eliminated mass poverty in what is today considered the developed world. 1982/1985): Zarefsky Juniors 2008 37 . 196] Worse still. And geographically. and freedom of exchange -.the greater the reduction in poverty. instead of the social order that promotes this self-loathing. in fact accelerating. Extending the system of property rights protection to include the property of poor people would be one of the most important poverty reduction strategies a nation could take. when the peasants struggled and lost their battles for their communal lands (a precursor to similar struggles throughout Africa and the Americas). he says. This fatal and systematic violence may be called The War on the Poor. uncriticized in substandard educational systems. and invisible violence. unending.200 million. this violence was sanctified. ABU JAMAL 98: Mumia. most effective way to reduce world poverty is economic growth." [Gilligan. Economic Perspectives. because. This is. and the kids fight each other. B.html) Economic growth is the "only path to end mass poverty. and every single year.

html.org/unis/pressrels/2006/envdev891. At its current session. as it continued its fourteenth session. industrial development.unvienna. Professor Emeritus of Environmental Engineering at Alexandria University in Egypt. However. air pollution and climate change.unis.) Many developing countries had experienced significant economic growth rates.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Impact: Econ K2 Poverty 38 Economic growth is key to solving Poverty UN 06 (http://www. noted Ahmed A. owing to industrial development and their ability to benefit from globalization. far behind". that was not the case for some. who attributed Africa's lag in industrial development to. Zarefsky Juniors 2008 38 . particularly the least developed countries and some small island developing States. inadequate infrastructure. it was noted in one of four panel discussions held today. see Press Release ENV/DEV/887 . among other things. (For background on the session. driven by industrial development. was key to poverty eradication and the achievement of development goals. Hamza. the Commission on Sustainable Development heard today. the Commission is reviewing progress in meeting internationally agreed goals and targets in the areas of energy. May 5) Sustained economic growth. "The rising tide of prosperity had led Africa far.

Bettman. . in our experiment the threat of market closure may have the effect of forcing participants to rapidly assimilate relevant. Our results indicate unequivocally that circuit breakers have no beneficial effect in tempering unwarranted price movements. In the case of a temporary halt. Church. why would the possibility of market closure cause prices to be closer to the uninformed expectation? When faced with the possibility of a trading interruption. the decision-maker faces a real dilemma because mistakes can be made by acting too quickly or by waiting too long. Coles College of Business at Kennesaw State University and Visiting Scholar at the Federal Reserve Bank of Atlanta. In fact. available information. A vast literature in psychology and decision-making examines how people respond under time pressure. and Jayaraman 02. which has an unfavorable effect on price behavior. With market closure looming. as in securities markets like the NYSE. agents are more likely to mistakenly infer that others possess private information. “the decision-making dilemma … comes from the fact that it is easy to make mistakes by deciding too soon and equally ineffective to delay choices or to imitate others. This result raises an interesting question. as they focus on relevant cues and exclude the peripheral (Easterbrook (1959)). which causes price to move away from the uninformed expectation. Ackert. Bryan K. circuit breakers may prevent prices from deviating from the uninformed expectation. Consistent with this evidence. The temporary halt may cause agents to focus on irrelevant information. traders are subject to greater time pressure. The data fail to suggest that circuit breakers have a significant impact on trading volume or allocative efficiencies in our markets. We do not find a similar result with market closure. are faced with making decisions under time pressure. decision makers’ performance improves. further worsening the condition of the economy. Ackert: recipient of a Smith Breeden Prize for Distinguished paper in the Journal of Finance Professor of Finance in the Michael J. in periods without private information. Church: faculty director of the Accounting PhD Program at Georgia Insitute of Technology.pdf] This study examines the effect of circuit breakers on market behavior when agents are uncertain about the presence of private information. Most notably. Circuit breakers have the potential to play a useful role under these conditions if unwarranted price movements are tempered. By comparison. if agents mistakenly infer that others possess private information.” Traders are time constrained so that the risks inherent in imitating others are significant. price deviations from the uninformed expectation are greater in markets with temporary halts than in those with market closure.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Circuit Breakers Solve 39 Turn: While certain aspects of circuit breakers may be beneficial. We conclude that circuit breakers play no useful role whatsoever in our experimental asset markets. In such a situation. it results in irrational decision making and unnecessary investor panic. . They must focus on important information and avoid dwelling on extraneous cues. If temporary halts fail to prevent unwarranted price movements. agents in our markets. agents have extra time on their hands when the circuit breaker rule is triggered.” http://www. I Think. in markets with temporary halts.frbatlanta. and Narayanan Jayaraman: Area Coordinator for Finance at the Georgia Institute of Technology [“Circuit Breakers with Uncertainty about the Presence of Informed Agents: I Know What You Know . Lucy F. breakers that trigger a temporary halt appear to have a detrimental effect. Notably. Luce (1996)). Importantly. individuals may adapt and accelerate information processing and focus on important information (Ben Zur and Breznitz (1981)). windows of opportunity re-open as the market does. particularly as windows of opportunity may no longer be available (Payne. Decision makers increase speed so that they can incorporate more relevant information in the time available. Our results suggest that further research is necessary to systematically investigate the effects of time pressure and introspection on investors’ behavior.org/filelegacydocs/wp0225. in environments with great stress due to time pressure. Zarefsky Juniors 2008 39 . page 121). As pointed out by Eisenhardt (1993. With moderate time pressure. Our data suggest that with a temporary halt. A laboratory setting provides a conducive environment to perform such research. They have fewer opportunities to reverse decisions or act on information.

1) It was not and is not intended to be used for market influence. President Bush is right to resist pressures to open the SPR.0. depletion of the reserve will prevent it from fulfilling its proper purpose. Congressman Farr and other lawmakers who disagree should stop pandering to voters with their quick-fix scheme.was setup after the huge Gas Crisis back in ’73-‘74.story] Some politicians and pundants are talking about using the Strategic Petroleum Reserve to try to fix prices.chicagotribune. Chicago Tribune 7-14-08 [“Strategic Petroleum Reserve not the right answer. The Strategic Petroleum Reserve – the “SPR” . accident.ksbw. and get on with talking about real.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: SPR Solves 40 Utilizing the SPR would endanger security and simply not work. penny wise but pound foolish. Zarefsky Juniors 2008 40 . 4) If there is a disruption due to war. It’s questionable if releasing any oil from the SPR would actually have an impact on prices. we’re all feeling the pain at the pump. 3) It will not have significant effect if any. California [“Editorial: Strategic Oil Reserve. But there’s no question that it would drain our rainy-day oil supply when there is no true national emergency.” http://www. And if it did.html] Farr along with many other lawmakers thinks the President should open the nation’s Strategic Petroleum Reserve to increase supply…and. Its mission is to prevent a national emergency from becoming a national disaster by providing at least a short term oil supply during a crisis.1429479. it would likely be only for a few days. or natural disaster.com/news/opinion/letters/chi-080714oil_briefs.com/editorials/16924693/detail.” http://www. KSBW News 7-17-08. but putting the nation’s security at risk for each of us to save just a few cents is. It is not – nor should it become – a device to try to get the government in the way of free market forces. and it’s basically a place where the federal government stores oil to use in case this nation’s oil supply is disrupted. in theory lower prices. NBC affiliate for the Monterey-Salinas-Santa Cruz. terrorism. 2) It is not the job of the government to become a player in any market. The SPR simply wouldn’t work: four reasons. substantive solutions to our nation’s energy challenges. Yes. quite literally.

The most recent estimates from the U. The oil industry has a vested interest in continuing the energy policies of the 20th century. yet has only 3% of the world's oil reserves. Real leaders will understand that we will never be able to drill our way to energy independence and will move aggressively to pursue 21st-century solutions. Energy Information Administration suggest that oil drilling in the Arctic Refuge would have practically no effect on gasoline prices.” http://online. The U.and therefore would be incapable of driving down prices at the pump -. To address the problem of high gas prices." June 18) and two days later by American Petroleum Institute President Red Caveney ("The 'Idle' Oil Field Fallacy.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: ANWR Solves 41 Drilling in ANWR would take decades to occur and only lower prices by a few cents – shocks would still occur – only a shift to alternative energy would solve. as your June 18 editorial states.even if we were to drill every square inch of every acre of protected public lands. The destruction of this pristine protected wildland would help consumers save only a few pennies per gallon.html?mod=googlenews_wsj] The views expressed by your paper's editors ("McCain's Energy Drill. uses nearly 25% of the world's oil.wsj. Zarefsky Juniors 2008 41 . two decades down the road. Wall Street Journal 6-27-08 [“Drilling in ANWR Isn't the Answer. The Arctic National Wildlife Refuge has no "proven" reserves. This fundamental imbalance between supply and demand would not change -." June 20) miss the point on many counts.S. we must move away from oil and toward national policies that reward conservation and speed the development of renewable energy sources.S.com/article/SB121453925066710195.

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

A2: Shocks good ( renewables) 42

Shock-induced alternative energy simply wouldn’t work – we must begin investing immediately. Such a transition
would be a violent crash, rather than a soft landing recession.
Heinberg 10-6-04, Richard: Senior Fellow of Post Carbon Institute
[“The Consequences of Oil Dependency,” http://www.energybulletin.net/node/2431]

However, the long-term implications of our dependency on quickly depleting non-renewable oil are seldom explored. Oil and gas account for
the lion’s share of US energy consumption and are critical to transportation, home heating, and electricity generation. Soon we will have less
of these fuels to go around, despite an expanding population and the constant demand for more energy to fuel economic growth. Economists
tell us that higher oil prices will stimulate investment in energy alternatives. However, the prospects for a painless
market-driven transition away from fossil fuels are hardly encouraging. Globally, trillions of dollars will have to be
spent on research and on new infrastructureÑtens or hundreds of billions per year, starting immediately. We are not
seeing anything like that level of investment now; we have to assume that it will begin after the global oil peak (that is,
after an obvious price signal making alternatives more attractive). But then, with less energy available to fuel the economy, we
will have trouble simply maintaining basic services. There won’t be any surplus to jumpstart the new energy
infrastructure, which will take decades to build. High energy prices will cause recessions, destroying demand. Then,
reduced demand will lead to partial relaxations of energy prices. Temporarily lowered prices will stimulate economic recovery and hence
renewed demand, which will again be constrained by declining rates of oil extraction, leading to more recessions, and so on. In other words,
as demand begins to exceed supply, expect increasing price volatility, with a general upward and steepening
underlying price trend. The ultimate consequence will be a global depression worse than that of the 1930s.

Oil shocks do not spur energy renewable sources – they just create havoc
Gupta 08 (A.K., The Indypendent, http://www.indypendent.org/2008/07/19/oil-shock/, July 19)
The 1970s oil shock was due to geopolitics — rising nationalism, the 1973 Arab-Israeli War and the overthrow of the Shah in 1979.
The causes of this energy crisis are similar. The U.S. invasion of Iraq, saber-rattling and sanctions against Iran, attempts to topple Venezuela’s
Hugo Chavez and energy nationalization from Bolivia to Russia has crimped supplies. So if there is another significant recession, demand will
eventually drop, surplus capacity will rise and prices will tumble, ending any marketbased incentive to move away from
fossil fuels. In the meantime, the oil shock will cause a rapid economic transition. A poll conducted earlier this year in the
Sacramento, California, area found that gasoline prices were the top concern and “12 percent of respondents had changed jobs or moved in the
past year to shorten their commute to work.”

Zarefsky Juniors 2008 42

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

A2: Economy Resilient 43

The economy is not resilient, we’re on the brink of recession – multiple reasons.
Roubini 7-15-08, Nouriel: former senior advisor to the U.S. Treasury and the IMF; Member, Council on Foreign Relations Roundtable on the
International Economy; Research Fellow, Centre for Economic Policy Research; Research Fellow, National Bureau of Economic Research; Professor
of Economics at the Stern School of Business at NYU; Chairman of RGE Monitor, a global economic and financial analysis firm
[“Nouriel Roubini predicts the worst financial crisis since the Great Depression,” http://winnipeg.indymedia.org/item.php?18440S]

New York, July 15, 2008- In a series of recent writings on the RGE Monitor Nouriel Roubini – Chairman of RGE Monitor and Professor of
Economics at the NYU Stern School of Business - has argued that the U.S. is experiencing its worst financial crisis since the
Great Depression and will undergo its worst recession in the last few decades. His analysis leads to the following conclusions: * This is by
far the worst financial crisis since the Great Depression * Hundreds of small banks with massive exposure to real estate (the average
small bank has 67% of its assets in real estate) will go bust * Dozens of large regional/national banks (a’ la IndyMac) are also
bankrupt given their extreme exposure to real estate and will also go bust * Some major money center banks are also semi-insolvent and
while they are deemed too big to fail their rescue with FDIC money will be extremely costly. * In a few years time there will be no major
independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather
than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental
flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial
banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow
banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank. *
The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by
Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression *
Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well
connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out
shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders
such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers. * This financial crisis will imply credit
losses of at least $1 trillion and more likely $2 trillion. * This is not just a subprime mortgage crisis; this is the crisis of an
entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to
unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds
that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump
from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds
and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market. * This will be the most
severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of
the tax rebates will fade out by mid-summer (July). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by
falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices. This will be a long,
ugly and nasty U-shaped recession lasting 12 to 18 months, not the mild 6 month V-shaped recession that the delusional consensus
expects. * Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average
of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus,
equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets. * The rest of
the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time.
Already 12 major economies are on the way to a recessionary hard landing; while the rest of the world will
experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic
slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks. * The current U.S
recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of
the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a
stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an
outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and
overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble
went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain,
Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies. * But over time inflation will be the last
problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in
inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in
labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order
of 20-30% will further reduce inflationary pressure. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to
growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a
collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end
of this financial disaster and severe recession cycle.
Zarefsky Juniors 2008 43

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

A2: Shocks Empirically Denied 44

The situation is different now, being a combination of oil shocks and credit problems.
Roubini 6-30-08, Nouriel: former senior advisor to the U.S. Treasury and the IMF; Member, Council on Foreign Relations Roundtable on the
International Economy; Research Fellow, Centre for Economic Policy Research; Research Fellow, National Bureau of Economic Research; Professor
of Economics at the Stern School of Business at NYU; Chairman of RGE Monitor, a global economic and financial analysis firm
[“A deadly cocktail mix: the 1973 & 1979 “Stagflation” meets the 1990 and 2001 “Asset/Credit Bust” with the result being an ugly U.S. recession and sharp global slowdown,”
Roubini Global Economics, http://www.rgemonitor.com/blog/roubini/252887/]

It now appears that the U.S. and global economy is facing the worst of the shocks that led to the U.S./Global
recessions of 1974-75 and 1980-82 (stagflationary shocks from oil prices) together with the shocks (asset/credit bubbles
gone bust) that led to the recessions of 1990-91 and 2001. The combined mix of the worst shocks that led to the last
four U.S. and global recessions (1974-75, 1980-82, 1990-91, 2001) is thus quite deadly and therefore one of the reasons
why this will not be a short and shallow recession (V-shaped and lasting only 6 months) in the U.S. but rather a longer, uglier
and deeper one (U-shaped and lasting 12 to 18 months).

Not true – conditions are different now.
IHT 6-30-08, International Herald Tribune
[“Inflation, oil dependence and the Fed's next step,” http://www.iht.com/articles/2008/06/30/opinion/edoil.php]

The Fed is in a bind. If it keeps rates low and loans plentiful to combat a recession, inflation could worsen. If it raises rates and tightens the
money spigot to fight inflation, the downturn could be deepened and prolonged. History may not be a reliable guide. It is easy to
draw analogies to eras like the stagflationary 1970s. Then, high prices led to higher wages and the dreaded wage-
price spiral. Raising interest rates increased unemployment and slowed wage growth, choking inflation. But today,
wages are barely budging, even as prices go up. Rate hikes to fight today's inflation - which stem from commodity
prices, not wages - may not be the fix they once were.

Zarefsky Juniors 2008 44

The Law of Cause and Effect ever holds sway. it will be the coming war to end for ever the suffering of the world's poor and neglected. Ultimately. It may well take a similar coming together of the world's peoples to end the next deflation. The last deflation ended with the advent of World War II as the Allied forces increased economic production to fight the Axis powers. but when. their hunger and hopelessness. the world's central bankers will not have the ability to prop up the world's collapsing financial structure. Let each of us in the West hope that. Scott: international finance expert for Share International [“To the precipice. Champion 99. It is not a question of whether or not the system will fail.shareintl.org/archives/economics/ec_sctoprecipice. we have placed ourselves in a much greater risk position than in 1929.htm] With the sophistication of computers and modern telecommunications.” http://www. if it takes a war. and our shame. Zarefsky Juniors 2008 45 .Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Econ Collapse Empirically Denied 45 Not true – modern technologies that we didn’t have in the ‘20s puts us at an even greater risk.

"The economic outlook has been taken hostage by the relentless surge in oil prices.: Los Angeles Times Staff Writer. and it doesn't seem like anybody's in charge or can do anything about it. Until this week. "We may finally have crossed the line where the price of crude actually matters for most companies." said President Bush's chief economist.Only a few weeks ago. equity strategist at New York financial firm Miller Tabak & Co. a credit crunch and continuing job losses.” http://www. 5-24-08 Peter G. Zarefsky Juniors 2008 46 ." said Robert V.S.6841046.story] WASHINGTON -. but they got a pretty good dose of reality the last few days.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Alt Causes 46 Alt causes are irrelevant – oil prices are the ONLY thing that can cause a recession. "The data are pretty clear that we are not in recession.full. But instead of clearing. economist at Citigroup in New York. the skies over the economy have ominously darkened in recent days. Treasury Secretary Henry M. prominent policymakers and economists were cheerfully asserting that the U. Kretzmer. "We're seeing an inexorable increase. economy would dodge recession and keep chugging forward despite a housing bust. And there are signs the nation may have reached an economic tipping point after years of shrugging off the petroleum problem.0. Paulson Jr. Edward Lazear. Gosselin. "The stock market has been in la-la land when it comes to oil. chief U. declared "the worst is likely to be behind us" and confidently predicted that more than $100 billion in tax rebates would help create half a million new jobs by the end of the year." The ill effects of the latest price hikes would not be so surprising if it were not for the fact that the nation's economy and financial markets remained blissfully unruffled by oil's upward march during most of the last five years." said Peter Boockvar.latimes.S. The chief reason is oil." added Bank of America senior economist Peter E. economics correspondent for The Boston Globe [“Relentless rise in oil prices tests economy's resilience. DiClemente.com/business/la-fi-econ24-2008may24.

Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: high growth disproves 47 High growth forecasts now don’t disprove the shock risk New Zealand News 7-16-08 [“US economy still at risk – Bernanke.4. He stressed that the outlook for economic growth and inflation was unusually uncertain.8% . Zarefsky Juniors 2008 47 .3.radionz.nz/news/latest/200807160729/26d848a] The head of the United States central bank has warned there are still what he calls "downside risks" to economic growth in the world's largest economy.” http://www.2%.1% . The Fed has raised its inflation forecast to a range of 3. up substantially from its previous projection of 3. In remarks to the US Senate Banking Committee on Tuesday.4%.co. Federal Reserve chairman Ben Bernanke said rising energy and food prices are raising inflation risks. Dr Benanke also said that financial markets and institutions are under great stress.

Senior Fellow at the Cato Institute.cato.are the reason high oil prices threaten to shrink industrial production of goods directly affected and also of energy-intensive products such as aluminum and paper. tire plants use petroleum to make synthetic rubber. fertilizer. pesticides. advisor to the National Commission on the Cost of Higher Education Oil Prices: Cause and Effect. detergent. production costs are increased and profits reduced for industries that depend on oil. bubble gum and Vaseline. Absent a shift to renewables.not consumer gasoline costs -.S. When the cost of oil goes up. industries use petroleum to produce the synthetic fiber used in textile mills making carpeting and fabric from polyester and nylon. eyeglasses. industries use petroleum to produce plastic. Research Director with National Commission on Tax Reform and Economic Growth.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Price Increases Only Temporary 48 Our current dependence on foreign oil creates a never-ending cycle where increases in production directly increase oil prices as well. whether those nations import or export oil. paint. Producer costs -. This threat affects all new and old industrial economies. the price of oil will continue increasing. formerly Director of Economic Research at the Hudson Institute. Zarefsky Juniors 2008 48 . deodorant. drugs. Alan Reynolds 05.S. CATO INSTITUTE. http://www. heart valves.php?pub_id=3947 U.org/pub_display.S. crayons. U. Other U.

Zarefsky Juniors 2008 49 . small countries that produce oil can have a major impact on global markets. a trade organization. the impact of corruption and mismanagement in countries like Angola. CFR 05. ethnic strife in the southern Nigerian town of Warri in March 2003 shut down 40 percent of Nigeria's oil production for several weeks. especially in Africa.html] Given the tight supply and surging demand of the world oil market. every barrel of export counts.” http://www. "Community strife or local unrest" in small countries can raise oil prices around the world. "When the market's as tight as it is now. and Nigeria-which can lead to unrest and force halts to production-are magnified on a global scale.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Middle East = Reliable Oil 49 The market is uniquely vulnerable to non-OPEC countries.cfr. Council on Foreign Relations [“The Pernicious Effects of Oil." says Richard Karp of the American Petroleum Institute. This is in contrast to many previous oil shocks. As a result.org/publication/8996/pernicious_effects_of_oil. when international cartels like the Organization of Petroleum Exporting Countries (OPEC) effectively controlled world oil supply. Chad. he says. For example.

That financial drain at $120 per barrel is jamming the brakes on the US economy and inflating the trade deficit. so it's been hard for many people to see. "What we need to do to cut oil consumption is quite clear. Mass. or we have a hard landing.. chief economist at Global Insight. May 12. but we must keep the soft landing recession – decreasing fossil fuel reliance is the best way." says the cofounder of the Rocky Mountain Institute. But today at the $120 per barrel level. SECTION: Money & Values. 13 Unlike the 1970s. the average US family spent about $1.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Recession Inevitable 50 Recession is inevitable. Lexington.000 a year or about 15 percent of total annual income. yet also worse. The good news is the US economy is less energy intensive . a family will spend about $6. Pg. and gasoline. That should make it more resilient. "The question now isn't whether we're going into recession. heating oil. position. the US paradoxically is in a bit better. about 60 percent of the 21 million barrels the US consumes daily. Compared with the oil crises of the 1970s. Christian Science Monitor. Nariman Behravesh. While oil at $120 a barrel "makes a mild recession a little deeper.8 percent of its income) on natural gas. Wescott's report predicts. Monday. it's whether there will be a soft landing . he has focused like a laser beam on how the nation can save energy.." Zarefsky Juniors 2008 50 . "We're having a replay of the 1970s without the Arab oil embargo part. That's the wrong way to go. "But attention keeps getting focused on the wrong things . Colo. the effects of expensive oil on the American family could be stark. An American energy guru since the gas lines of the 1970s.. with oil approaching $40 per barrel. BYLINE: Mark Clayton Staff writer of The Christian Science Monitor. Even with US airlines cutting flights and SUV sales now tanking. 2008. has done economic projections with oil at even higher prices." the results of oil at $150 would be much worse with the nation "looking at a fairly serious recession.using only about half the energy it did in the 1980s to produce a dollar of economic growth." says Amy Myers Jaffe. But the bad news is that imported oil has risen to about 12 million barrels a day. an energy scholar at the Baker Institute at Rice University in Houston. Jaffe says. Its economic impact has been masked by consumers tapping credit cards and home equity to cover the rising cost of energy and some consumer goods. today's oil crisis has been stealthy.like subsidies for the oil industry to find more oil.than Amory Lovins. Perhaps nobody knows better what the nation could do .900 (4. In 2003. Oil Shock 2?." Ms." But where there is awareness of the problem there is hope. 5/12/08 Christian Science Monitor. Wescott's report says. economists agree.but mostly has not yet done . when an oil embargo left Americans waiting in long lines at gasoline stations and paying higher prices. an energy think tank in Snowmass.

By the time hyperinflation kicks in. N. 2008. http://www. rose 0.A. which is way too high for the Fed's liking. where he was named an Edward Tuck Scholar. Mark Trumbull Staff writer of The Christian Science Monitor The troubling part was not so much the headline [inflation number].Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation 1AC [1/7] 51 ADVANTAGE ____ IS INFLATION Scenario 1: Inflation Oil prices are pushing cost push inflation higher. Christian Science Monitor. John has worked with individuals as well as Fortune 500 companie. Because wages aren't rising very fast. Similarly. driven largely by demand in emerging markets. So far. that the Fed has little control over. and was awarded a M. Christian Science Monitor. raising rates will do little to contain a non-demand driven inflation. with food and energy prices stripped out. He received an A. such as seen in the current circumstance that is so heavily affected by high oil prices. which shows household income dispersion at historic highs. Zarefsky Juniors 2008 51 . Unrestrained inflation will cause us to go into a Great Depression through hyper-inflation.5 percent [annual] core inflation rate. prices for one of the key costs businesses face .John Williams” From the Fed’s standpoint. “That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present.show little sign of spiraling out of control. it would be a sign of a widening inflation problem. Despite minor changes to the system. While the overall rate is what burdens consumers. 7/17/08 Christian Science Publishing Society. 4/8/08 Shadow Government Statistics. the economy already should be in depression. Williams.labor . an economist at Wachovia Corp. -. The so-called core rate of inflation. the bigger worry for Fed policymakers was a sign that higher oil prices are feeding into a more generalized rise in prices. page 1. Mr.3 percent for the month. Thursday Inflation surge puts Fed in a quandary. Such is consistent with the final graph in this group. Bryson says. from Dartmouth College in 1971. it can neither stimulate the economy nor contain inflation.shadowstats. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad)." he says. Rising oil prices have been a global phenomenon. that also limits the ability of businesses to pass along price hikes.com/article/292. Walter J. and my results led to front page stories in the New York Times and Investors Business Daily. considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. from Dartmouth's Amos Tuck School of Business Administration in 1972. though wage price remains unaffected." says Jay Bryson. Uncontained inflation is likely to bring normal commercial activity to a halt.C. in Charlotte. Lowering rates has done little to stimulate the structurally-impaired economy. "John" Williams was born in 1949. government reporting has deteriorated sharply in the last decade or so. "You're looking at a 3. All Rights Reserved. But if last month's rise in the core rate persists.B. cum laude. July 17. and the hyperinflation quickly should pull the economy into a great depression. During his career as a consulting economist. in Economics. and raising rates may become necessary in defense of the dollar.B.

With oil and grain prices soaring to record highs at the same time that growth in the world economy is being dragged down by recession in the U. This scenario unfolds like this: to protect themselves.S. is following the same stimulative policy with even larger interest rates cuts because of fears of a deepening recession. Zarefsky Juniors 2008 52 . Statistics Canada reported that despite a 5. taken from Bloomberg.S. Ltd. For example. But while inflation is up in the U. as in Europe. The settling stagflation will result in a global economic collapse. Of course. http://seekingalpha. A16 Economy needs a break Stagflation.) will blame everyone else and begin pulling back from their bilateral and multilateral trade agreements. Seeking alpha. Last Thursday. in turn. There never is. higher tariffs and inflated currencies.S. Toronto Star. and Euroland. By the same token. and especially manufacturers. and is now retired and lives in northern California. Asia. and probably Europe will decline for 2008. or on the horizon and blowing towards shore.. and can only be avoided if cost burden is taken off consumers.weak growth and rising inflation . some economists worry that it could be setting the stage for a period of stagflation.come together. would be met by retaliation of our former partners in the developing world. Pg.S. and the heady times of ever expanding world economies comes to an end. real GDP growth in the U.4 per cent (year over year) in March. as in the U. the problem is that policy-makers' attempts to confront one only worsen the other.g.S. and writes on financial matters. in the form of trade embargoes. and not be much better in 2009. While the rise in the dollar has helped moderate inflation by keeping import prices down. in Commerce and Business Administration) and Louisiana Tech University [MBA] as well as advanced graduate studies at New York University School of Business in economics. Europe (to a 16-year high of 3. raising interest rates to reduce inflation also has the effect of sucking even more life out of an already stagnant economy. in Canada it continues to decline.S. but it is the latest available. trying to protect their domestic workforce from falling real wages and businesses from the effects of higher commodity prices.and paid for - this flexibility. When the two diseases that make up stagflation . In my view. This they will do. and increasingly that of many others. April 20. that ugliest of economic words is being heard more and more often.4 per cent rise in the price of energy. and the greater fear is that it could turn into a 1930s scenario of economic activity spiraling downward. and the new ones will be soon! The table below (click to enlarge). But slower times are upon us. The old giants are staggering.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation 1AC [2/7] 52 Stagflation is being fueled by cost push inflation. is a little outdated in what to expect in terms of real growth. it has also made it that much more difficult for Canadian producers. So what has set Canada apart in creating the policy flexibility that other countries do not enjoy? The fact is that Canada has bought . The overall Consumer Price Index suggests that Canadian business has swallowed a large part of the increases in energy costs instead of passing them on to consumers. its fourth consecutive monthly decline.6 per cent) and China (8. Although the U.. there is no agreement about the severity or longevity of the downturn. World trade plummets. EDITORIAL. 7/10/08 Ray Hendon has business degrees from the University of Alabama (B. lowering interest rates to boost growth tends to feed the inflationary fires and exacerbate that problem. partly through its rising dollar and partly through its reaction to the competitive squeeze the dollar created. Hendon. He taught economics and finance in several universities in the United States. 2008 Sunday. (4 per cent). the developed nations (the U. With no evidence that inflation is picking up in Canada. It's a no-win situation. to compete globally for business. and it did happen in the early stages of the 1930s depression.S. there are clouds either overhead. as Canadians learned the hard way in the 1970s and early 1980s. overall food prices have increased by only 0. Africa. e. It’s a horror of a scenario. as it said it would do in recent pronouncements. Stagflation will not be a purely local affair for us. The Toronto Star.com/article/84368-stagflation-and-the-limits-of-growth Regardless of where you look. statistics and finance. This can even be seen in the food index: Despite the steep 9 per cent increase in the price of bakery products caused by the run-up in grain prices (wheat prices have more than doubled in the past year). He continues advising a small clientèle on portfolio construction. and Latin America. the Bank of Canada has a great deal of leeway in focusing on the problem of weak growth. the overall Consumer Price Index increased only 1. Beta Gamma Sigma. He is a member of the honorary scholastic society.4 per cent. 4/20/08 Copyright 2008 Toronto Star Newspapers. This.7 per cent in February).

We need a middle-term timeline to 2020 if we are serious about promoting change now. in saving the world from climate change -. Malthus is back in vogue. Zarefsky Juniors 2008 53 . in effect. food and commodities. With climate change. as well as the more long-standing subsidies that many developed nations provide their farmers. is to assist in guiding and hastening this nascent economic transformation. with international assistance. the so-called "bottom billion. Everything seems suddenly in short supply: energy. The Washington Post. Here. Our job.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation 1AC [3/7] 53 A global effort to shift to alternate energy is critical to keep the economy going and to avoid stagflation. It has many causes. now in its fifth decade. Yet today.and in keeping the global economy growing. international financial organizations. we need to inject a sense of urgency and real leadership into this quest. has raised living standards worldwide and lifted billions out of poverty. In Hokkaido. We promised this assistance. the United Nations and its various agencies working as one. Begin with the global food crisis. deepening the immediate crisis and jeopardizing global growth. Meanwhile. Pg. which. More than ever. Alternative technologies are among our best hopes for cleaner. Mindful of our responsibilities to the poorest nations most vulnerable to climate change. Above all. Lastly. Looking forward to the December climate change summit in Poznan -. Those in need have faces: mothers who die needlessly in childbirth. For Africa alone. Population growth and rising wealth place unprecedented stress on the Earth's resources. infants stunted through life because they do not receive adequate nutrition during their first two years. We need to change social behavior and consumption patterns throughout the developed world. this is the moment to prove that we can cooperate globally to deliver results: in meeting the needs of the hungry and the poor. We've seen it happen in Malawi. It is not enough to set goals for 2050. Hokkaido will test our commitment to the Millennium Development Goals. has shifted within a few years from being a country plagued by famine to one that exports food.inflation coupled with slowing growth or outright recession -.we must push ahead with negotiations for a comprehensive agreement limiting greenhouse gases. EDITORIAL COPY. Washington Post. this time with a focus on small farmers in Africa. we know that these issues affect us all: north and south. sustainable development figures large in the solution." In dealing with problems of such dimension and complexity. all that nourishes us and supports our modern ways of life. Such artificial barriers distort trade patterns and drive up prices. far down the road. climate change and environmental degradation threaten the future of our planet. grounded in sustainable development -. 7/3/08 Ban Ki-Moon. rich and poor. up 60 percent from 2006 and accounting for 23 percent of new power-generating capacity. We must act immediately to get seeds. We can take a big step forward in Hokkaido. A17. With the right mix of programs. As the leaders of the Group of Eight gather here. too. in promoting sustainable energy technologies for all.as parts of a whole requiring a comprehensive solution. The reason: Plenty comes at an increasingly high price. And we must help developing countries "green" their economies by spreading climate-friendly technologies as broadly as possible. large nations and small. donors have pledged $62 billion a year by 2010. easing scarcity worldwide. affordable power. clean air and fresh water. as well. many wonder how long it can last. is a "green revolution" of the sort that once transformed Southeast Asia. What's needed. as national and international leaders." as some economists put it. We must encourage nations to eliminate the export restrictions that many placed on foodstuffs this spring. The great economic expansion. And we know we must find ways to extend the benefits of the global boom to those who have been left behind. we must fully fund the global Adaptation Fund and make it operational.and to Copenhagen in 2009 -. Global Action to Save Global Growth Global growth is the leitmotif of our era. We see it daily in the rising cost of fuel.while the world's poorest no longer can afford to eat. among them a failure to give agricultural development the importance it deserves.nations. A big part of that solution should be a "global supply-side response. I will call on G-8 nations to triple official assistance for agricultural research and development over the next three to five years. Never in recent memory has the global economy been under such stress. Now is the time to provide it. fertilizers and other agricultural "inputs" to farmers in vulnerable countries in time for the coming harvests. a new "green revolution" is underway. Consumers in developed countries fear the return of "stagflation" -. there is no reason productivity cannot be doubled within a relatively short span. there is only one possible approach: to see them for what they are -. The United Nations Environment Program has found that $148 billion in new funding went into sustainable energy last year. Most experts agree that we are nearing the end of cheap energy.

vice chairman of the Standing Committee of the National People's Congress told a conference in Beijing on Wednesday.4729. inducing more rapid dollar depreciation. the US spent US$331 billion on oil imports. and the trade deficit would have been one-fifth lower. which was 47 percent of the US trade deficit of US$708 billion. and the Swiss franc since 1995. But as markets opened across Europe. The high and rising price of oil does. Xu Jian. former chairman of the Council of Economic Advisers and former chief economic advisor to President Ronald Reagan [“The Dollar and the Price of Oil.html?_r=1&hp&oref=slogin] The most immediate trigger for the sell-off in the dollar.08. since the dollar has fallen relative to other major currencies. If the price of oil had remained at US$65 a barrel. Feldstein 5-27-08. before retreating. The only effect of the dollar’s decline is to change the price in dollars relative to the price in euros and other currencies.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation 1AC [4/7] 54 Scenario 2: Dollar Decline Higher oil prices directly result in a declining dollar. the dollar price of oil would have increased less. China has expressed views that if the dollar's decline continue at high rates. Martin: president and CEO of the National Bureau of Economic Research. however. That is only true to the extent that we think about the price of oil in dollars. George F. $1. Baker Professor of Economics at Harvard. The euro rose to a new record." Cheng Siwei. The dollar is declining because only a more competitive dollar can shrink the US trade deficit to a sustainable level.nber. Mr. Zarefsky Juniors 2008 54 . the cost of the same volume of imports would have been only US$179 billion. NOT the other way around. Cheng later told reporters he was not saying China would buy more euros and dump dollars. But if the dollar-euro exchange rate had remained at the same level that it was last May.pdf] The coincidence of the dollar decline and the rise in the oil price suggests to many observers that the dollar’s decline caused the rise in the price of oil." according to Bloomberg News. the British pound since 1981. and will readjust accordingly.nytimes. because the increasing cost of oil imports widens the US’ trade deficit. contribute to the decline of the dollar. said the dollar was "losing its status as the world currency. it will become more difficult to shrink the US trade deficit.com/2007/11/08/business/08econ.syndicate. And the dollar price of oil would have gone up 56 percent.org/feldstein/dollarandpriceofoil. those words echoed as an invitation to sell the American currency. traders said. The key point here is that the euro price of oil would be the same as it is today.” http://www.” http://www. The dollar fell to its lowest level against the Canadian dollar since 1950. they will dump it. was a jarring signal that suggested China might shift some of its enormous hoard of foreign currency reserves — worth more than $1. Last year. Thus. New York Times 07 [“Markets and Dollar Sink as Slowdown Worry Increases.4 trillion. "We will favor stronger currencies over weaker ones. primarily in dollars and dollar-denominated assets — into other currencies to get a better return on its money. as rising global demand pushes oil prices higher in the years ahead. A Chinese central bank vice director.

assets they know they would lose if a hot war erupted with the US. putting tens of millions of Americans on the unemployment line and putting unbearable pressure on the US Government.S. Most of China's neighbours.S. Cruise Missile guidance systems. The crippling of the US is a highly desirable military benefit for China at a relatively cheap price since it will leave their human capital and infrastructure assets in place. . conflict over Taiwan.htm] In speaking with the contact at the Pentagon. to include India. The great powers do not merely strive to be the strongest great power. Instead. The Pentagon source went so far as to say "Even if China was to lose the entire one trillion in cash to a collapse of the Dollar as a currency.the art of fighting. . they will have succeeded in taking the U.S. in other words. no state can know the future intentions of other states with certainty. China could prevent that plant from shipping to the U. The mightier a state is. because it is too hard to project and sustain power around the globe. The ultimate goal of every great power is to maximise its share of world power and eventually dominate the system. Then. Japan. and Sino- American conflict. [ CARD CONTINUES ON NEXT PAGE – NO TEXT DELETED ] Zarefsky Juniors 2008 55 . the only great power in the system. The international system has several defining characteristics.S. Finally.” http://www. is now located in.S.without firing a shot!" A 'classic' Sun Tzu paradigm of victory . Wendell Harrison Distinguished Service Professor of Political Science at the University of Chicago [“The rise of China will not be peaceful at all. itself is not attacked. but hardly a word of protest greeted the assertion that the US should check rising powers and maintain its commanding position in the global balance of power. they want to keep other regions divided among several great powers so that these states will compete with each other. however.China. They can. attempted to intervene against any Chinese military action. To predict the future in Asia.S. States that gain regional hegemony have a further aim: to prevent other geographical areas from being dominated by other great powers. This document's stance on pre-emptive war generated harsh criticism. The Chinese see that the U. with the U. shortly after the Cold War ended. relative to potential rivals. the first Bush administration boldly stated that the US was now the most powerful state in the world and planned to remain so.com/general74/report. . economy in shambles and its manufacturing base eroded by a steady stream of manufacturing plants moving out of the US. Rense 06 [“Report .China To Dump One Trillion In US Reserves. could re-tool. Russia and Vietnam. But it is almost impossible for any state to achieve global hegemony in the modern world. which means that they can hurt each other. The main actors are states that operate in anarchy which simply means that there is no higher authority above them. although that is a welcome outcome. will join with the US to contain China's power. the only plant in the world which can manufacture the specialized gyros needed for U. In 1991. the less likely it is that another state will attack it. That same message appeared in the famous National Security Strategy issued by the second Bush administration in September 2002. off the world stage as any type of effective military or economic power -. and once our arsenal of cruise missiles was depleted. get that military to South Korea and to Japan. Military is over-stretched and almost exhausted by its globe trotting Commander-In-Chief. do not want peer competitors. If China continues its impressive economic growth over the next few decades. Singapore. .” LEXIS] THE question at hand is simple and profound: will China rise peacefully? My answer is no. Further.S. South Korea. The best way to survive in such a system is to be as powerful as possible. the US and China are likely to engage in an intense security competition with considerable potential for war. Mearsheimer 05. it would take a long time to re-tool a plant to make more gyros and resupply cruise missiles for battle. Chinese expansionism results in international coalitions balancing against China. They are also confident the U. John: R. All great powers have some offensive military capability.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation 1AC [5/7] 55 A Chinese dollar dump would result in an expansionist China and the decline of American hegemony. the U.S. without fighting. I am able to now report the Pentagon views this currency-killing as a cunning military aspect to Chinese plans: The Pentagon says that while China has a 2 Million man army. They feel that by intentionally destabilizing the dollar. if the U.rense.S. Regional hegemons. the American government will be too occupied with troubles at home to do much internationally. economy will fail. Even the US is a regional but not a global hegemon. will never "go nuclear" as long as the U.. America will be in no position to challenge China. My theory of international politics says that the mightiest states attempt to establish hegemony in their own region while making sure that no rival great power dominates another region. allowing the Chinese to act militarily elsewhere in the world. Their ultimate aim is to be the hegemon.S. The Chinese feel they could accomplish certain military goals before the U. The best that a state can hope for is to dominate its own back yard. one needs a theory that explains how rising powers are likely to act and how other states will react to them. they lack the logistics and heavy lift capability to move that army and supply it..

Furthermore. The picture I have painted of what is likely to happen if China continues its rise is not a pretty one. they will join an American-led balancing coalition to check China's rise. are worried about China's ascendancy and are looking for ways to contain it. much the way Britain. although that is always possible. is probably the only way that China will get Taiwan back. Beijing should want a militarily weak Japan and Russia as its neighbours.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation 1AC [6/7] 56 [ CARD CONTINUES FROM PREVIOUS PAGE – NO TEXT DELETED ] China -. allowing China to control that large island. joined forces with the US to contain the Soviet Union during the Cold War. In the anarchic world of international politics. That is the tragedy of great power politics. the US can be expected to go to great lengths to contain China and ultimately weaken it to the point where it is no longer capable of ruling the roost in Asia. In essence. Gaining regional hegemony. which is why China is likely to imitate the US and attempt to become a regional hegemon. as well as Japan. In fact. These policy goals make good strategic sense for China. which is sure to infuriate China and fuel the security competition between Beijing and Washington. and even China. much the way the US pushed the European great powers out of the Western hemisphere. But the fact is that international politics is a nasty and dangerous business and no amount of goodwill can ameliorate the intense security competition that sets in when an aspiring hegemon appears in Eurasia. as well as smaller powers such as Singapore. why would a powerful China accept US military forces operating in its back yard? American policy-makers. I might add. Instead. it is more likely that it will want to dictate the boundaries of acceptable behaviour to neighbouring countries. given Taiwan's strategic importance for controlling the sea lanes in East Asia. as Japan did in the 1930s. after all. It is clear from the historical record how American policy-makers will react if China attempts to dominate Asia. the US is likely to behave towards China much the way it behaved towards the Soviet Union during the Cold War. Germany. Finally. China's neighbours are certain to fear its rise as well. The US does not tolerate peer competitors. Italy. Zarefsky Juniors 2008 56 . just as the US prefers a militarily weak Canada and Mexico on its borders. Indeed. We should expect China to come up with its own version of the Monroe Doctrine. Specifically. South Korea and Vietnam. Japan. France.whether it remains authoritarian or becomes democratic -. go ballistic when other great powers send military forces into the Western hemisphere. there is already substantial evidence that countries such as India. Those foreign forces are invariably seen as a potential threat to American security. and Russia. The same logic should apply to China. An increasingly powerful China is also likely to try to push the US out of Asia. and they too will do whatever they can to prevent it from achieving regional hegemony. As it demonstrated in the 20th century. of course. it is hard to imagine the US.is likely to try to dominate Asia the way the US dominates the Western hemisphere. Why would China feel safe with US forces deployed on its doorstep? Following the logic of the Monroe Doctrine. What state in its right mind would want other powerful states located in its region? All Chinese surely remember what happened in the 20th century when Japan was powerful and China was weak. China will seek to maximise the power gap between itself and its neighbours. it is better to be Godzilla than Bambi. it is determined to remain the world's only regional hegemon. especially Japan and Russia. much the way the US makes it clear to other states in the Americas that it is the boss. China will want to make sure that it is so powerful that no state in Asia has the wherewithal to threaten it. In the end. Japan. I actually find it categorically depressing and wish that I could tell a more optimistic story about the future. It is unlikely that China will pursue military superiority so that it can go on a rampage and conquer other Asian countries. Taiwan is likely to be an important player in the anti-China balancing coalition. would not China's security be better served by pushing the American military out of Asia? Why should we expect the Chinese to act any differently than the US did? Are they more principled than the Americans are? More ethical? Less nationalistic? Less concerned about their survival? They are none of these things. Therefore.

which could have led to the use of nuclear weapons. Gen Ridgeway said that should that come to pass.truce or a broadened war. The balance of power in the Middle East may be similarly upset by the likes of Iraq. He said military leaders considered the use of nuclear weapons mandatory if the country risked dismemberment as a result of foreign intervention. the Philippines and. hostilities between India and Pakistan. commander of the US Eighth Army which fought against the Chinese in the Korean War. Russia may seek to redefine Europe's political landscape. Japan. there is little hope of winning a war against China 50 years later. Will a full-scale Sino-US war lead to a nuclear war? According to General Matthew Ridgeway. And the conflagration may not end there as opportunistic powers elsewhere may try to overturn the existing world order. Major-General Pan Zhangqiang. Singapore. could enter a new and dangerous phase. In south Asia. A Chinese military officer disclosed recently that Beijing was considering a review of its "non first use" principle regarding nuclear weapons. Conflict on such a scale would embroil other countries far and near and -.raise the possibility of a nuclear war.” Jun 25. If Washington were to conclude that splitting China would better serve its national interests.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation 1AC [7/7] 57 US-China war will go nuclear and destroy the planet Straits Times 2k [“Regional Fallout: No one gains in war over Taiwan. With the US distracted. LN] THE high-intensity scenario postulates a cross-strait war escalating into a full-scale war between the US and China. it cannot be ruled out entirely. short of using nuclear weapons. to a lesser extent. a personal account of the military and political aspects of the conflict and its implications on future US foreign policy. told a gathering at the Woodrow Wilson International Centre for Scholars in Washington that although the government still abided by that principle. each armed with its own nuclear arsenal. this means South Korea. we would see the destruction of civilisation. The US estimates that China possesses about 20 nuclear warheads that can destroy major American cities. Beijing has already told the US and Japan privately that it considers any country providing bases and logistics support to any US forces attacking China as belligerent parties open to its retaliation. Gen Ridgeway said that US was confronted with two choices in Korea -. the US had at the time thought of using nuclear weapons against China to save the US from military defeat. for China puts sovereignty above everything else. While the prospect of a nuclear Armaggedon over Taiwan might seem inconceivable. then a full-scale war becomes unavoidable. If China were to retaliate. In his book The Korean War. east Asia will be set on fire. there were strong pressures from the military to drop it. There would be no victors in such a war. Beijing also seems prepared to go for the nuclear option. In the region. If the US had to resort to nuclear weaponry to defeat China long before the latter acquired a similar capability. president of the military- funded Institute for Strategic Studies. Zarefsky Juniors 2008 57 .horror of horrors -.

predicted the economy will only get rougher through the end of this year and into next year. “For a brief period. though. albeit not as extreme as three decades ago. Rising bond yields are likely to raise borrowing costs for corporations and consumers. The Labor Department reported yesterday that wholesale prices rose at their fastest clip since 1981. who helps oversee $2 trillion as head of investment strategy at Barclays Global Investors in San Francisco. July 16) Nervous Americans barely able to make ends meet now face the dual threat of a faltering economy and wholesale inflation running at a 27-year high.90 percent.is entering a tenuous and dangerous stage. High oil prices are leading the economy in an era of stagflation Fitzgerald 08 (Jay. But he predicted a period of “very.bostonherald.com/article/reutersEdge/idUSN1456888520080714?sp=true] Stagflation.’s current dependence on oil fuels a cycle where the dollar continues to fall while prices continue to rise.” Federal Reserve Chairman Ben Bernanke and economists warned that the economy - battered and bruised by high oil prices and a financial sector reeling from the subprime-mortgage meltdown . The Dow finished yesterday below the 11. and global economies faced a downturn that could reduce demand for petroleum products. demand from emerging markets is likely to keep oil prices high. Meanwhile. dollar in which oil is priced and provide another reason for oil prices to rise further.44 to about $138." Loeys said.S.1 percent over the past 12 months alone.reuters.2 percent. very low growth” for the economy.S. he said. eating away at consumers’ purchasing power and elderly citizens’ investment nest eggs. consumer price inflation above 5. analysts said. Wall Street appeared to have a split personality yesterday. a slowing U. Meanwhile. Developed countries such as the United States are already suffering from stagflation. Treasury bond yield has risen to around 3.S. "The new world is booming and competing for the resources by bidding up the price. some economists believe it has already returned. and the benchmark U.S.S. chief economist at Boston’s Eastern Bank. from 4. China. some economists forecast. economy may continue to undermine the U. initially sending stocks plunging amid fears that the government’s plan to bail out mortgage giants Fannie Mae and Freddie Mac wasn’t enough to ease financial worries in markets. But stocks crept back up upon news that crude oil prices had fallen by their largest amount in 17 years. David Wyss.0 percent per year. The closest comparison is the 1970s. economy's dependence on oil may not be as great as three decades ago.0 percent in August this year." said Jan Loeys. according to new economic data that suggest the nation could be headed for a dreaded 1970s-like era of “stagflation. “There’s further evidence of deceleration in the economy.S. thanks to the credit crunch and soaring energy prices.S.” said John Bitner.000 mark for the first time in two years. Even that seemingly positive oil-market development. just prior to a brutal recession in the early 1980s.S. while the old world has its problems with ageing populations and falling productivity which is depressing growth. jouralist for Boston Herald. Reuters 7-14-08 [“Shadow of 1970s inflation starting to worry bondholders. http://news. “We haven’t seen the worst yet. declining $6. India and other emerging economies are driving global inflation pressures. head of global asset allocation with JPMorgan in London. analysts said. and European economies are seeing economic growth slow this year. was based on speculators’ fears that the U.” Robert MacIntosh.com/news/regional/general/view. or anemic growth combined with high inflation was last seen in the United States in the 1970s and early 1980s.or an economy suffering from stagnant economic growth while inflation soars upward. “We’re getting hit from multiple sides right now. the department warned.” http://www. The U.962 Zarefsky Juniors 2008 58 . Since 2000 oil prices have quintupled from around $30 a barrel to nearly $150 a barrel.” That double-whammy hit led some economists to speculate whether the nation might be entering a period of “stagflation” . it will be stagflation.S. Now. an economist at Standard & Poor’s. but these factors may not be enough to cushion the United States from global inflation pressures. Bernanke warned of “significant downside risks” to economic growth and “significant challenges” for fed policymakers as they keep a nervous eye on inflation at the same time. he said. Wholesale prices soared by 9. “Stagflation’ fears on rise”. While the U.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Uniqueness: Stagflation Now 58 The U. at a time when banks are reducing lending in the wake of the global credit squeeze of the past year.so it may not run wild in coming months. record gasoline prices and escalating food costs will likely push annual U. said inflation hasn’t yet taken hold in wages and salaries . inflation has risen to over 4. Now. chief economist for Boston’s Eaton Vance. and a domestic wage-price spiral has yet to materialize.” said Russ Koesterich.bg?articleid=1107335. while U. "The old world is in stagflation because the new world is in inflation. closing at at 10.

emphasized that "the enormous jumps in oil prices and other commodity prices are to some extent at least due to real factors out of the control of the Federal Reserve." "The CPI report underlines the current stagflation. the problem is that policy-makers' attempts to confront one only worsen the other.google.come together.0 percent in recent months. For example. US economist at Global Insight. raising interest rates to reduce inflation also has the effect of sucking even more life out of an already stagnant economy. speaking after the CPI data release.S. But while inflation is up in the U.this flexibility. (4 per cent).0 percent.8 percent higher than in June 2007. that ugliest of economic words is being heard more and more often. Bernanke.2 percent rise in core inflation.3 percent rise in core CPI excluding energy and food was the strongest since January. as it said it would do in recent pronouncements.weak growth and rising inflation . When the two diseases that make up stagflation . Toronto Star." he told the House of Representatives in his second day of semiannual testimony to Congress. Energy prices advanced a whopping 6. "Inflation is the bind that ties the Fed and it is quite tight right now.6 percent from April and the core rate increased 0. Kenneth Beauchemin.1 percent in June to an annual pace of 5. Gasoline prices rose a searing 10.and paid for . a day after delivering a grim report to the Senate. While the rise in the dollar has helped moderate inflation by keeping import prices down. 2008 Sunday.. the overall Consumer Price Index increased only 1." Fed chairman Ben Bernanke said in a second day of testimony to Congress. is following the same stimulative policy with even larger interest rates cuts because of fears of a deepening recession. The report underscored Federal Reserve concerns about rising inflation and sluggish growth -." "It's the global supply and demand conditions which are affecting those particular things to the most significant extent. The Fed chief's remarks indicated the central bank.4 per cent rise in the price of energy. accounting for slightly more than half of the total advance in CPI in June. the Bank of Canada has a great deal of leeway in focusing on the problem of weak growth. Although the U. With no evidence that inflation is picking up in Canada. The overall Consumer Price Index suggests that Canadian business has swallowed a large part of the increases in energy costs instead of passing them on to consumers. It's a no-win situation. headline inflation was up 0. http://afp.6 per cent) and China (8. data showed Wednesday. Zarefsky Juniors 2008 59 . Indeed. said the inflation trend combined with the current growth outlook signals the Fed "will take a pass on rate hikes until 2009. A16 Economy needs a break Stagflation. following a 4.com/article/ALeqM5hY5o_vyFmCDYRKgGAgNgevb2XGrA.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Uniqueness: Stagflation Now 59 Oil will send us into stagflation AFP 08 (“US inflation soars at 26-year high on energy prices”. Core CPI was 2. would be hard-pressed to loosen monetary policy in the face of accelerating inflation. This can even be seen in the food index: Despite the steep 9 per cent increase in the price of bakery products caused by the run-up in grain prices (wheat prices have more than doubled in the past year). it has also made it that much more difficult for Canadian producers.7 percent in headline inflation and a 0. So what has set Canada apart in creating the policy flexibility that other countries do not enjoy? The fact is that Canada has bought .6 percent in June.7 per cent in February)." said Joel Naroff of Naroff Economic Advisors. 4/20/08 Copyright 2008 Toronto Star Newspapers. Ltd. By the same token. CPI was up 5. which has slashed its key interest rate to 2.4 percent higher than in June 2007. the strongest rate since March." he added.S. while a 0. however." The Labor Department said that energy prices accounted "for around two-thirds" of the rise in overall inflation in the world's biggest energy consumer.S. The Toronto Star. The monthly advance in the Labor Department's consumer price index (CPI) was the sharpest since June 1982. lowering interest rates to boost growth tends to feed the inflationary fires and exacerbate that problem. Statistics Canada reported that despite a 5.as the economy battles fierce headwinds from financial turmoil and the worst housing crisis in decades.0 percent in June. Europe (to a 16-year high of 3.the noxious combination of stagflation -. Stagflation is going to cause the US major losses. prompting a central bank warning and rising stagflation concerns. April 20. the hottest annual inflation level since May 1991. Bank of America economist Peter Kretzmer said that in light of Bernanke's testimony Tuesday indicating both downside risks to the economy and upside risks to inflation. In May. some economists worry that it could be setting the stage for a period of stagflation. overall food prices have increased by only 0. "And it's a top priority of the Federal Reserve to run a policy that's going to bring inflation to an acceptable level consistent with price stability as we go forward. as Canadians learned the hard way in the 1970s and early 1980s. July 16) Soaring energy costs drove US consumer prices up 1.4 percent increase in May. "Inflation is currently too high. partly through its rising dollar and partly through its reaction to the competitive squeeze the dollar created.2 percent.4 per cent. and especially manufacturers.4 per cent (year over year) in March. in Canada it continues to decline. the remote chance for financial disaster in the coming months keeps a rate cut on the table. Last Thursday. To avoid it price burdens must be removed from consumers shoulders. "this morning's extreme spike in headline inflation and unfavorable core reading are particularly unwelcome. and were 32. and points to the variety of difficulties faced by the Fed.1 percent. EDITORIAL. With oil and grain prices soaring to record highs at the same time that growth in the world economy is being dragged down by recession in the U. its fourth consecutive monthly decline. The surprisingly stiff momentum in consumer prices exceeded analysts' consensus forecasts of a gain of 0." he added. to compete globally for business. On a 12-month basis. Pg.

person. recipient of the John Bates Clark Medal and the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. as of June 2008 (http://ideas. unable to compete as emerging energy sources repeatedly slash development and commercial prices. Whatever factors are at play. Eugene 7-9-08. most cited economist in the world.com/hotspring/2008/07/149/oil-shock-the-coming-economic-unraveling-how-we-can- adjust/] Petroleum is the most pervasive base resource other than water in the global economy of the 21st century.repec. production is nearing its geological peak. unable to readjust to consumers’ means. Oil prices could be in a stagflation lock.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Uniqueness: Stagflation Now 60 Oil driven stagflation is occurring now.casavaria.” http://www. chairs the University of Manchester's Brooks World Poverty Institute.html) [“Oil Shock: the Coming Economic Unraveling & How We Can Adjust.org/top/top. and it looks like production cannot meet global demand. Joseph: former Senior Vice President and Chief Economist of the World Bank. and untenable price increases are hitting a strained economy hard. and as demand is exploding. Zarefsky Juniors 2008 60 . crude oil prices have jumped over 900% since 1998.all.

"The world environment has become very inflationary. India's government has suspended futures for a clutch of key commodities as states resort to draconian measures. Saudi Arabia (9.7).'' he said. Christian Noyer.'' he said. Romania (8.3pc in April as oil and gas wealth the flooded the economy. India. Stock markets have already fallen sharply in China. The measure tends to anticipate the industrial cycle by about six months. Argentina (8.5pc).has picked up a sharp deterioration in the eurozone in March. CITY. where the advance signals are falling even faster than in Britain. rampant inflation is starting to damage business confidence. http://web. governor of the Bank of France. Many emerging economies are partially 'importing' US monetary policy.com/scholastic/document?_m=144c839a25a900b8c5f855530264f6ef&_docnum=12&wchp=dGLzVzz-zSkVk&_md5=fb07980d671df55675346223436283a0 THE OECD's early warning signal is flashing clear signs of economic weakness across the world. warned of a return to "mass unemployment'' if Europe repeats the errors of the 1970s. The Daily Telegraph. with inevitable over-heating. The Emirates (11pc). Ambrose Evans-Pritchard. notably in Italy and France. China (8. Jean-Claude Trichet. While the soaring cost of food and energy is the key driver for the poorest countries.6pc). The closely-watched gauge . but the country's inflation rate reached 14. setting off widespread riots. Many of these countries are now suffering the worst prices spiral in thirty years. Russia is the only country still in full boom among the so-called BRIC quartet of rising powers. Europe faces an incipient "stagflation'' as inflation of 3.9pc). forcing them to shadow the US Federal Reserve's super-loose interest rate policy. Most Gulf states are linked to the dollar.'' said the OECD. 4.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Uniqueness: Stagflat Killing Glob Econ 61 The world’s economy is on the brink and is beginning to succumb to the dangers of stagflation. India. and India.6pc). 5/15/08 WORLD ECONOMY OECD warning as stagflation goes global. While growth continues to power ahead in most emerging markets. the club of rich nations. said this week that the pegs had become a major headache. "The latest data point to a potential downturn in Brazil. India (7. China. others are ensnared by their own currency pegs.3pc combines in a nasty cocktail with slowing growth. Pg. Vietnam (21pc). Indonesia (9pc). and Vietnam as the authorities rein in credit. Pakistan (17pc). Qatar (17pc). and Brazil may soon succumb to the downturn. or "dirty float''. China operates a semi-fixed rate. Turkey (9. Latvia (18pc). It fears that 1970s-style inflation could become lodged in the system as workers push for higher wage deals. Egypt (16pc) Bulgaria (15pc). the ECB's president.lexis- nexis.6pc).at least in the "near term''. Philippines (8. Price pressures across the emerging world are reaching levels that may soon threaten stability unless governments jam on the brakes. Zarefsky Juniors 2008 61 . Inflation rates have reached: Venezuela (22pc). Morgan Stanley has advised clients to cut their holdings of emerging market stocks. "We would make an enormous mistake.known as the Composite Leading Indicators (CLI) . The mix poses an acute dilemma for the European Central Bank. Estonia (11pc).3pc). with mounting evidence that China. although their position in the economic cycle is fundamentally different. which is precisely the mistake we made in the first oil shock. The Daily Telegraph. warning that surging prices have started to queer the pitch .

inflation erodes gain. 2/29/08 http://news. Excluding volatile food and energy costs.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Window: Stagflation 62 It’s a perfect storm – current conditions create a unique window for stagflation Reuters.moneycentral. rose 0.a combination of stagnant growth and spiraling prices. the biggest year-on- year gain since September 2005.4 percent in January after an upwardly revised increase of 0. the index was up 0. Zarefsky Juniors 2008 62 .Reuters. a key inflation gauge.7 percent over the past year.aspx?feed=OBR&date=20080229&id=8262427. Consumer spending up. 2008 9:46 AM ET The personal consumption expenditure price index. February 29. MSN money. economy is struggling under the weight of a deep housing downturn and tight credit conditions have led some economists to warn of the risk of "stagflation" -.S. which has cut interest rates sharply since mid-September in a bid to combat recession risks. Higher-than-expected inflation readings at a time when the U.msn. On a year-over-year basis. have said they prefer to keep the core price gauge in a 1 percent to 2 percent range. this "core" price index rose 2.2 percent. matching the prior month's gain.com/provider/providerarticle. Many officials at the Federal Reserve. The index has surged 3.3 percent -.in line with analysts' expectations and the steepest monthly rise since September.3 percent in December.

as consumers feel the impact of rising fuel costs along with rising food prices. considering the barrage of discouraging economic and financial trends harassing the waking hours of our hero. but it'll give way to another dip before the real upturn takes root. albeit at a comparatively modest -0. http://www. a slowdown in Joe's willingness and/or ability to spend after stripping out inflation. up slightly from December's 0. we push on. if Joe's still pulling out his wallet as always. and surprisingly well. This morning's update on personal income and spending in January reveals that personal consumption expendtires rose 0.S. Extending the thought. While inflation is currently low. Consumer spending. In fact. of late. represents 70% or so of GDP. Joe Sixpack.com/archives/2008/02/whats_up_or_dow. there is the fear among consumers that prices in other areas could climb even as retailers are feeling the squeeze on margins while they struggle to maintain current prices. On that note. is generally falling. which impacts not only retail.000-foot survey. 2/29/08 http://www.4%. after cutting away the distorting cloud of inflation. That is. 6/13/08 MGPS: Consumer Spending Down. and arguably looks set for more of the same in the foreseeable future. advancing by 0. Reuter. debt continues to increase. Stepping back and looking at the broader trend in real personal consumption spending only reaffirms the message in the last few months." Obsessed with the idea that there may be a more granular truth lurking in the numbers. TheCapital Spectator. Loan delinquencies and mortgage foreclosures continue to rise with no end in sight even as housing prices continue to fall with some major markets reporting price drops of 20% over last year.S.capitalspectator. we'll see a modest bounce down the road. but numerous other sectors. Only services-related spending managed to rise in real terms last month. Although some predict consumer spending will slowly rise. the effect will be temporary and so a "W" recovery may be coming. The hope is that the Fed and Congress can arrest the trend via rate cuts and fiscal stimulus. we're never willing to "leave it there. breaking out real spending by the major categories provides even more incentive for staying cautious on the question of. starting with the risk of trading a cyclical downturn for higher inflation. Meanwhile. that's the second month running that real PCE was flat. The implication: consumer spending. Consumer spending drives much of the U.4% rise in PCE last month all but evaporates when we adjust for inflation. In addition. economy so many sectors are hit including the financial sector.3% last month from December. at least in nominal terms. and it was the third instance in the last four months. further placing pressure on consumers to curtail spending.reuters. Zarefsky Juniors 2008 63 . the housing sector. measured in real terms at a seasonably adjusted rate--the fourth monthly decline in a row. But as regular readers of this site are all too aware. consumer spending appears to be holding up. perhaps worries of recession are excessive. as our chart below illustrates. there's the added worry that even if Washington is able to engineer a bounce in consumer spending. What's next? Durable goods spending last month fell by 1. Real PCE spending was unchanged (based on rounding to one decimal point) in January. and inflation is about to start rising.4% last month. namely. although there's a cost to everything. let's dive a bit deeper into today's spending update by noting that the 0.2%. The result is reduced spending by consumers.3%.html. respectively. If the trend raises questions about the future. Banks are placing more restrictions on lending. If we leave it there. we can say that Joe's spending habits haven't changed much. Perhaps. That's about average if we look at the past two years of monthly PCE spending patterns. during this period of our economy it will remain low. after all. On the surface. TORONTO--(Business Wire)-- . limiting access to capital. the automotive sector and the manufacturing sector among others. the odds of a deep and/or lasting economic stumble may be overbaked.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Uniqueness: Consumer Spending 63 Consumer Spending is Really low right now. wondering if we've missed something in the 30.com/article/pressRelease/idUS115209+13-Jun-2008+BW20080613 Consumer spending is down across the U. Nondurable goods spending slipped too.

4%. if the Fed wants to keep oil prices on this side of the stratosphere. too.com/2008/05/28/with-oil-speculators-blitzing-the-fed-needs-to-call-an-interest-rate-reverse- play/ The inflationary reality that we as consumers have been living for months may finally be starting to dawn on the U. Hutchinson.1%-2. Federal Reserve. and the conclusion is inevitable: The nation’s central bank will soon have to reverse course and start raising interest rates .S. released on Wednesday.4% to a range of 3. showed that the Fed’s inflation forecast was raised from a range of 2. http://www. slashing the benchmark Federal Funds rate from 5.moneymorning.and probably in a hurry. The minutes of the last policymaking Federal Open Market Committee (FOMC) meeting.0%. Money morning.25% down to 2. That’s no small shift: After all.1%- 3. 5/28/08 By Martin Hutchinson Contributing Editor. Add the zooming oil prices we have seen recently into the mix.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Fed Rate Hikes Uniqueness/Link 64 Rising inflationary pressures will soon force the Fed to raise rates. Zarefsky Juniors 2008 64 . for nearly eight months the central bank has been mounting one of the most aggressive rate-cutting campaigns on record.

On the other hand.S.ece.uk/tol/business/columnists/article3433830. where he had spent over ten years as Tokyo correspondent and Washington Bureau Chief. Zarefsky Juniors 2008 65 . A Morgan Stanley survey of equity analysts found that 63 percent of the companies they track had raised prices this year. a stronger (U. the signs of recession have proliferated. there was so much slack in the economy that.aljazeera. Chaudhuri. 2008. Even as price pressures have picked up.S." Morgan Stanley's Berner said. February 26.broad-based price declines." he told a conference in New Hampshire this month. Stagflation’s uniquely threatening because businesses can’t pass inflationary costs onto consumers Reuter. together with simultaneous. But he has argued that inflation could seriously crimp the Fed's freedom of manoeuvre even in a crisis: "The flexibility to act pre-emptively against a financial disruption presumes that inflation expectations are firmly anchored and unlikely to rise during a period of temporary monetary easing. 2008 Adhip Chaudhuri. 5/12/08 What if slow U. cooling inflation and lower interest rates abroad seem likely to be disappointed. Stagflation’s distinct because the Fed can’t control it. The rising inflation trend seems. In January total employment contracted. "The baseline I see will involve an unappetizing combination of slower growth. This is why people in the United States are worrying openly about stagflation. economic slowdown will help keep a lid on inflation by curbing demand for labor and materials. This time the Fed doesn't have that luxury. during the last recession. Fed struggles to halt march of stagflation.reuters. they would raise inflationary expectations. for at least a year after the Fed had stopped cutting interest rates." said Richard Berner. house prices and construction continued to fall and business and consumer confidence plummeted.) dollar. Back in 2001. Gerard Baker: American View . at least so far. http://english. The central bank could be as aggressive in stimulating the economy as it wanted. There was virtually no risk that it would generate much inflation. http://www. to be impervious to the weakening economy. Morgan Stanley's chief economist. if they fought inflation by raising interest rates. Times Online.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand inflation/stagflation distinction 65 Stagflation poses a major threat since avoiding the harms is virtually impossible. All this makes the Federal Reserve's job much harder than it has been in the recent past. So far. The worse thing about stagflation is that the central banks find themselves in a dilemma. a visiting professor of economics at Georgetown University's campus in Doha. He joined in 2004 from the Financial Times. and high oil prices have a lot do with it. economy doesn't cure inflation?. Oil prices. 2/26/08 http://business. has been one of the most outspoken proponents of really aggressive monetary policy action to avoid the risks of serious financial dislocation and to shield the economy from its effects. have increased worldwide inflation rates. If they lowered interest rates to spur growth. The Times. Frederic Mishkin.com/article/sphereNews/idUSN1251357920080512?sp=true&view=sphere The central bank says the U. His weekly oped column appears on Fridays in The Times. The rising inflation is the "flation" part of "stagflation". high inflation. the US had no serious inflation threat to speak of.timesonline. and little decline in interest rates. Chicago Federal Reserve Bank President Charles Evans said on Monday that inflationary pressures would likely diminish because "the ability of businesses to pass along price increases is not as high" in a weak economy. the biggest concern of policymakers and markets was deflation . explains the cause and effect of high oil prices. In the first few weeks of February it looks as though manufacturing production may have fallen off a cliff. Qatar.S. a member of the Board of Governors of the Federal Reserve. the signs are pointing the other way.net/business/2008/07/200879184520258575. Gerard Baker is United States Editor and an Assistant Editor of The Times.co.html Recessions and the low growth rates represent stagnation and hence connote the 'stag' part of "stagflation". the reduction in money supply will have contractionary effects on the GDPs of their countries. "Investors hoping for the ideal scenario of a mild global slowdown. By Emily Kaiser and Brad Dorfman – Analysis. In fact. Both China and India now have high inflation rates with China at almost 8 per cent and India at 11 per cent. huge increases in food prices.

That middle-income family is spending an extra $253 on groceries each year. leaving ordinary households in decent shape and doing more damage to those who lent money at fixed interest rates. wages would be driving inflation upward. Zarefsky Juniors 2008 66 . Instead.” This bout of inflation is not occurring because labor markets are tight or because the U. Expensive crude oil has translated into higher costs to drive to work. not demand pull. Prices for oil and other commodities fell last week. assuming it did not change its buying patterns. The rapid growth of those developing nations. India and other developing countries have been acquiring a thirst for oil faster than producers can quench it.” said Faith Tyler.html. no vacations. combined with increasing dedication of agricultural space to production of ethanol. The average middle-income household must spend an extra $378 per year on gasoline than in 2006 if it consumes the same amount. if that were the case. “It just doesn't seem like anything is cheap these days. The San Diego Union-Tribune. Neil Irwin. has led to more demand than supply for food.S. 3/24/08 http://www. China. economy has been overstimulated. “I don't eat out very much. this inflation is driven by global commodity markets. a personal trainer from Baltimore who has reacted to the higher prices for necessities by cutting back on luxuries.com/uniontrib/20080324/news_1n24inflate.signonsandiego. nothing extravagant unless it's on sale.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand 66 Inflation/stagflation distinction Inflation is now occurring due to oil prices (cost push). though they remain at very high levels by any historical standard. 41. sending the price of oil up about 60 percent since 2006.

6/2/08 The Australian. 31 To try to understand the gyrations of financial markets -.are painful to implement.or at least to respond to them in a calm and rational manner -. But if a global recession is likely to be avoided. which has dominated most media and market comment since the credit crunch began in America. 2008 Wednesday .is therefore an essential part of the policy-orientated economist's job. given the huge tax cuts and interest rate reductions to which US consumers are likely to start responding in the second half of this year.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Inflation greater than Recession 67 The threat of inflation right now is greater than the threat of recession. This makes sense.higher interest rates and cuts in government spending -. Oil prices the key to economic recovery . GDP. July 2. Statistics suggest that the US economic slowdown is already at or near its low point and the risks of a serious recession are rapidly diminishing. industrial activity and employment have all been consistent with a fairly typical mid-cycle slowdown and none have fallen sufficiently to signal even a mild recession.All-round Country Edition. then. Of course it is possible that the US economy will deteriorate in the months ahead. consumption. is in my view the least plausible of these threats. but only up to a point. SECTION: FINANCE. The possibility of a serious US recession. The bad news is that inflation is much harder to cure than weak growth or unemployment because the remedies required -. Zarefsky Juniors 2008 67 . can we sensibly say about the awful developments in all the financial markets this month? There seem to be three main anxieties linked to the present bear markets: the fear of recession. What.FINANCIAL TURMOIL. Pg. the risk of inflation and the spiralling price of oil. The Australian. BYLINE: ANATOLE KALETSKY. why are investors in such a funk? The answer is that most now see inflation as a much greater threat than recession. but this seems unlikely. 1 .

What promises hyperinflation this time is the lack monetary discipline formerly imposed on the system by the gold standard. and unable to stimulate the economy. 4/8/08 Shadow Government Statistics. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad). The accompanying two graphs measure the level of consumer prices since 1665 in the American Colonies and later the United States. considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. Accordingly. For more than 25 years. During his career as a consulting economist. had to become a specialist in government economic reporting. and was awarded a M.S.S. Faced with the Great Depression. visually masks in the first graph the inflation volatility of the earlier years. from Dartmouth College in 1971. Walter J. "John" Williams was born in 1949. regular periods of inflation — usually seen around wars — have been offset by periods of deflation. however. The reason for this is the same as to why there has not been a formal depression since before World War II: the abandonment of the gold standard and recognition by the Federal Reserve of the impact of monetary policy — free of gold-standard system restraints — on the economy. and my results led to front page stories in the New York Times and Investors Business Daily. The first graph shows what appears to be a fairly stable level of prices up to the founding of the Federal Reserve in 1913 (began activity in 1914) and Franklin Roosevelt’s abandoning of the gold standard in 1933. World War I and World War II. cum laude. instead of the ice of deflation seen in the major U. from Dartmouth's Amos Tuck School of Business Administration in 1972. The price levels shown prior to 1913 were constructed by Robert Sahr of Oregon State University. it seems to take two generations to forget and repeat the mistakes of one’s grandparents. Price levels since 1913 either are Bureau of Labor Statistics (BLS) or SGS based. Similar reasoning accounts for other cycles that tend to run in multiples of 30 years.John Williams” As to the fate of the developing U. out of necessity. great depression. He received an A. There is some reason behind 30. it will encompass the fire of a hyperinflation.B. Williams. What is shown in the second graph is that up through the Great Depression. extremely over-leveraged domestic financial system. “That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present.com/article/292. I have been a private consulting economist and. That volatility becomes evident in the second graph. which is part of the reason some economists and analysts have been expecting a deflationary depression in the current period.S. partially due to the monetary discipline imposed by the gold standard. and at an exponential rate when viewed using the SGS-Alternate Measure of Consumer Prices in the last several decades. The gold standard was a system that automatically imposed and maintained monetary discipline.and 60-year financial and business cycles. with inflation history shown only through 1960. as indicated. Excesses in one period would be followed by a flight of gold from the system and a resulting contraction in the money supply. Then.B. The inflation peaks and the ensuing post-war depressions and deflationary periods tied to the War of 1812. economic activity and prices. The magnitude of the increase in price levels in the last 50 years or so. Franklin Roosevelt used those issues as an excuse to abandon gold and to adopt close to a fully fiat currency under the auspices of what I call the debt standard. as the average difference in generations in the U. government reporting has deteriorated sharply in the last decade or so. John has worked with individuals as well as Fortune 500 companie. http://www. the United States has not seen a deflationary period in consumer prices since before World War II.shadowstats. the Civil War.A. Particular inflation spikes can be seen at the time of the American Revolution. is 30 years. in Economics. inflation takes off in a manner not seen in the prior 250 years. Aside from minor average annual price level declines in 1944 and 1955.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Hyperinflation Coming 68 Hyperinflation will occur instead of predicted deflation because of the dropping of the gold standard. Despite minor changes to the system. and a Federal Reserve dedicated to preventing a collapse in the money supply and the implosion of the still. the War of 1812. going back to the 1600s. the Civil War and World War I show close to 60-year cycles. where the government effectively could print and spend whatever money it wanted to. Zarefsky Juniors 2008 68 . -. where he was named an Edward Tuck Scholar. depressions prior to World War II.

prices of imports rise as the foreign exchange value of the currency falls. Today. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice. Simon Chair. and Senior Research Fellow.creators. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington. and is the co-author with Lawrence M. including the William E.html . the United States. Hoover Institution. If freely traded currencies are excessively printed or if inflation. He was Associate Editor of the Wall Street Journal. Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy. People who haven't accumulated much age have little idea of the corrosive power of "acceptable" inflation. He was awarded the Legion of Honor by French President Francois Mitterrand. Unlike gold and silver. budget deficits and trade deficits drive currencies off their fixed exchange rates. Center for Strategic and International Studies. When money is created faster than goods and services. Georgetown University. 3/26/08 Watching the Dollar Die.Paul Craig Roberts. Assistant Secretary of the Treasury during President Reagan’s first term.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Hyperinflation  Dollar Decline 69 Hyperinflation pushes a dollar decline. fiat money has no intrinsic value. it drives up prices.com/opinion/paul-craig-roberts/watching-the-dollar-die. heavily dependent on imports. http://www. He has held numerous academic appointments. Zarefsky Juniors 2008 69 . Paul Craig Roberts. Stanford University. thus driving down the value of the money. is subject to double-barrel inflation from both domestic money creation and decline in the dollar's foreign exchange value.

We need a middle-term timeline to 2020 if we are serious about promoting change now. infants stunted through life because they do not receive adequate nutrition during their first two years. The great economic expansion. The Washington Post. now in its fifth decade. all that nourishes us and supports our modern ways of life. we know that these issues affect us all: north and south. We've seen it happen in Malawi. I will call on G-8 nations to triple official assistance for agricultural research and development over the next three to five years.inflation coupled with slowing growth or outright recession -. affordable power. as national and international leaders. It is not enough to set goals for 2050. large nations and small. For Africa alone. we must fully fund the global Adaptation Fund and make it operational. With climate change. Mindful of our responsibilities to the poorest nations most vulnerable to climate change. grounded in sustainable development -. Population growth and rising wealth place unprecedented stress on the Earth's resources.and to Copenhagen in 2009 -. We must act immediately to get seeds. a new "green revolution" is underway. Yet today." as some economists put it. The reason: Plenty comes at an increasingly high price. A big part of that solution should be a "global supply-side response. sustainable development figures large in the solution. far down the road.and in keeping the global economy growing Zarefsky Juniors 2008 70 . Malthus is back in vogue. easing scarcity worldwide. in effect. More than ever. Meanwhile. is a "green revolution" of the sort that once transformed Southeast Asia. Pg." In dealing with problems of such dimension and complexity. the so-called "bottom billion. the United Nations and its various agencies working as one. Begin with the global food crisis. climate change and environmental degradation threaten the future of our planet. this time with a focus on small farmers in Africa. Here. And we know we must find ways to extend the benefits of the global boom to those who have been left behind. there is only one possible approach: to see them for what they are -. we need to inject a sense of urgency and real leadership into this quest. We must encourage nations to eliminate the export restrictions that many placed on foodstuffs this spring. has shifted within a few years from being a country plagued by famine to one that exports food. clean air and fresh water. in promoting sustainable energy technologies for all. A17. Never in recent memory has the global economy been under such stress.nations. Our job.while the world's poorest no longer can afford to eat. Washington Post. up 60 percent from 2006 and accounting for 23 percent of new power-generating capacity. many wonder how long it can last. Everything seems suddenly in short supply: energy. international financial organizations. Lastly. as well as the more long-standing subsidies that many developed nations provide their farmers. Now is the time to provide it. As the leaders of the Group of Eight gather here. Most experts agree that we are nearing the end of cheap energy. with international assistance. Hokkaido will test our commitment to the Millennium Development Goals. there is no reason productivity cannot be doubled within a relatively short span. Global Action to Save Global Growth Global growth is the leitmotif of our era. Above all. With the right mix of programs. Those in need have faces: mothers who die needlessly in childbirth. too. food and commodities. Looking forward to the December climate change summit in Poznan -. 7/3/08 Ban Ki-Moon. In Hokkaido. Consumers in developed countries fear the return of "stagflation" -. And we must help developing countries "green" their economies by spreading climate-friendly technologies as broadly as possible. We promised this assistance. has raised living standards worldwide and lifted billions out of poverty. among them a failure to give agricultural development the importance it deserves.we must push ahead with negotiations for a comprehensive agreement limiting greenhouse gases. What's needed. We need to change social behavior and consumption patterns throughout the developed world. The United Nations Environment Program has found that $148 billion in new funding went into sustainable energy last year. deepening the immediate crisis and jeopardizing global growth. Such artificial barriers distort trade patterns and drive up prices.as parts of a whole requiring a comprehensive solution. this is the moment to prove that we can cooperate globally to deliver results: in meeting the needs of the hungry and the poor. in saving the world from climate change -. EDITORIAL COPY. donors have pledged $62 billion a year by 2010. is to assist in guiding and hastening this nascent economic transformation. We can take a big step forward in Hokkaido. as well. fertilizers and other agricultural "inputs" to farmers in vulnerable countries in time for the coming harvests.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Solvency: Stagflation 70 A global effort to shift to alternate energy is critical to keep the economy going and to avoid stagflation. Alternative technologies are among our best hopes for cleaner. which. It has many causes. We see it daily in the rising cost of fuel. rich and poor.

Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Solvency: Stagflation 71 Current loose monetary policy will trigger recession – only new energy investments can solve Washington Post. the current economic situation involves more than just an oil supply shock. http://www. Indeed. . and that is a fiscal and not a monetary issue. reduce spending on consumption and investment. it may trigger higher inflation in the future. reduced Fed anti-inflationary credibility. the supply shock-induced decline in the nation's output may accelerate. the credit market problems cannot be solved by traditional interest rate cuts. Firey. a weaker economy. So far. in turn. inflation rates have been ticking up since November. eventually. which compounds the negative oil price shock with a negative shock to Americans' wealth and spending. slower capital reallocations and. the housing sector has weakened and the financial markets are suffering liquidity shortages. But should it pursue that policy much further? Two arguments suggest that the FOMC should refrain from additional rate cuts. Declining home prices reflect over- investment in houses.cato. the Fed has appeared willing to run the risk of inflation in order keep the economy buoyed. Depreciating home values also cause lopsided bank balance sheets with too many non-performing loans eroding bank capital. They ultimately require an infusion of capital in affected institutions. increased inflation expectations. We worry that further delays induced by excessively accommodative policy will result in a vicious cycle of higher inflation. 4/24/08 Jagadeesh Gokhale and Thomas A. output losses from structural adjustments are unavoidable. Second. and that shift will not be painless.php?pub_id=9355 In the Fed's defense. The Fed Walks a Tightrope. But if it increases liquidity for financial institutions. Loose monetary policy might induce households and business to postpone making those changes -- but that will prolong and perhaps increase the total amount of economic pain. at least for now: First. Sooner or later. Those capital losses are triggering cutbacks in lending to viable borrowers who. If it tightens the money supply in order to combat inflation. The FOMC's policy disagreements over interest rates reflect its members' different perceptions and preferences about how quickly such adjustments should be promoted via monetary policy. we must shift our investment from housing to energy.org/pub_display. This leaves the Fed with lousy choices. Zarefsky Juniors 2008 71 .

We know the US government will continue fudge inflation data. Did anyone look at the faces of the sheiks in the crowd yesterday while Paulson was speaking? The only question I have is when are the Middle Eastern countries going to get off their US dollar currency pegs? Seriously. is there no hope for the US dollar? Actually.htm Despite what Bernanke and Paulson have been pontificating about the last few days. Barry Ritholtz says the US government's reports inflation data as "inflation excluding inflation". It is easy — but not necessarily helpful — to draw analogies to eras like the stagflationary 1970s. But today. They must be very irritated. I grew up in Louisiana and have since lived in San Diego. Better energy policy is one of the few hopes we have for decreasing inflation. Seeking Alpha..com/2008/06/29/opinion/29sun3. From this perspective. high prices led to higher wages and the dreaded wage-price spiral. they are having to cut their interest rates every time the US does even though inflation is running. in a vicious circle. between 10-20%.nytimes. there are people like Steve Forbes who contend all we need to do is shore up the dollar and oil prices will come down.. not wages — may not be the fix they once were. We don’t know how the Fed is going to get out of this bind. there is one prudent thing to do. a lower US dollar. well-crafted. I provide income tax. We know that jawboning a strong dollar policy (wink-wink) doesn't work. however. TX. the US must adopt a sound energy policy. the US dollar to decline.fitz-cpa. Fed policy will continue to promote negative real interest rates and thus. Zarefsky Juniors 2008 72 . 6/27/08 http://www. Foremost would be a systematic plan for reducing the nation’s dependence on oil. Then. Does Forbes really believe the rest of the world is not aware of the $650 billion US dollars that leave the US every year to pay for our oil addiction? Please. The Fed will have to feel its way through the current crisis. It is also the key to future economic prosperity and addressing global warming: a comprehensive. I am sure this was the rationale behind Axel Merk's Merk Hard Currency Fund [MERKX] which is up over 6% YTD.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Solvency: Stagflation 72 In order to save us from inflation and a declining dollar. Raising interest rates increased unemployment and slowed wage growth.com/index. http://www. Seeking alpha. I received a BSEE and worked for 22 years in the electronics industry. 6/4/08 Originally from upstate New York. In the long run. in some cases. Rate hikes to fight today’s inflation — which stem from commodity prices. like lower- income workers. the bigger challenge is not the Fed’s. long term US energy policy. wages are barely budging. New York Times. As usual. Phoenix. and Austin. The country first saw how high oil prices can wreak economic havoc with the oil shocks of the 1970s. even as prices go up. So. Forbe's has things back-asswards.html. History may not be a reliable guide. But the next president and Congress will have to tackle the oil problem once and for all. editorial. It is the rising cost of oil (due to worldwide supply/demand fundamentals) that is causing. Policy makers must come up with strategies to prevent the recession-and-inflation problem from happening time and again. was a San Diego tax consultant and financial planner. Congress and presidents have failed to reduce America’s vulnerability by reducing its dependency. choking inflation. On the other hand. high oil prices are actually a good thing — cutting use and spurring the development of alternative energy — but there must be help for the most hard-hit Americans.

OPEC for energy. are not just inevitable. there hasn't been much of an economic slowdown. women's and girls' apparel 7. no politician acknowledges the self-evident implication: that recessions. Inflation is accelerating. It's true that the Fed is treading the proverbial tightrope. Stagflation. all prices were up 4. they're stingier with wage increases. 2/27/08 Robert J.but the term is being misused.5 percent annually and unemployment 6. the Fed has been under great pressure to ease money and credit.stemming from an economic slowdown or recession -.1 percent. All these figures exceed the Federal Reserve's informal inflation target of 1 to 2 percent a year. which then push up wages. inflation averaged 7. creating a self-fulfilling wage-price spiral. at least as the concept was initially understood in the 1970s. the increase was still 3. The more upsetting figures are those for the past three months. 2008 Wednesday Regional Edition. we may be trading modest pain today for much greater pain tomorrow. The American economy -. Let's see why this is a distinction with a difference. Higher wages push up prices. There is fear of a wider economic crisis if large losses erode confidence and. For the year ending in January. The stagflation that began in the late 1960s and resulted from this attitude was indeed dreadful: From 1969 to 1982.) What has renewed interest in stagflation is the latest consumer price index (CPI).a marvelous but flawed engine of wealth -. But so far. Interestingly. The Fed creates inflation and can control it. many academic and business economists who have more freedom to speak their minds suffer the same deficiency. Trying to prevent a recession at all costs is a fool's errand that could ultimately backfire on us all. corporate market power for drugs. "Stagflation" is back in the headlines -. The overnight Fed funds rate has fallen from 5. Underestimating inflation then. Unfortunately.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Stagflation Kills Economy 73 Stagflation would couple with the wage spiral. Medical services were up 5.25 percent in early September to 3 percent now. a range deemed so low that it constitutes effective price stability. The Washington Post. The Washington post A-17. Yes. Politicians are clamoring for the Fed to prevent a recession. destroying the economy. Price increases of individual items can have many immediate causes: poor harvests for food.periodically goes to speculative or inflationary excesses. at annual rates). No one wants a financial crisis. Since August. it signified the simultaneous occurrence of high inflation. the government's main inflation indicator. February 27. Zarefsky Juniors 2008 73 . And these aren't the truly disturbing numbers. The Federal Reserve regulates the nation's supply of money and credit.3 percent. Banks and other financial institutions want cheaper credit to enable them to offset losses on subprime mortgages.helps control inflation. undermine their ability and willingness to lend and invest. It has. the Fed repeatedly shoved out too much money and credit in a vain effort to keep the economy near "full employment.9 percent. but its defining feature was the persistence of this poisonous combination over long periods of time. The coexistence of high (or rising) inflation and high (or rising) unemployment is not an abnormal event.8 percent annual rate. because the higher unemployment -. It isn't. focused on avoiding or minimizing any recession. uncompetitive markets for health care. Companies can't pass along price increases. They thus contribute to a political climate that. Then we get stagflation: a semipermanent fusion of high joblessness and inflation. outside of housing. sometimes they're also necessary to prevent the larger and longer-lasting harm that would result from resurgent inflation. Even eliminating food and energy prices (about a quarter of the index). It expected the economic slowdown to suppress inflation spontaneously. But it's usually temporary. by depleting the capital of banks and other financial institutions. If most of those excesses aren't given the time to self-correct. inflation hasn't been higher since July 1991. meant something different. the Fed shows signs of overreacting to these pressures and repeating the great blunder of the 1970s.4 percent over the past year) confirmed that. It's not a random accident.4 percent. in part because. the lower inflation hasn't materialized. Eminent commentators describe stagflation as the messy mixture of high inflation and high unemployment.3 percent (again. but no one should want the return of stagflation. Naturally." Now. the Fed has again underestimated inflation. But persistent inflation -.5 percent. They treat every potential recession as a policy failure when it is often simply part of the business cycle. (Present unemployment is 4. either. It's only when this restraining process is not allowed to work that inflationary psychology and practices take root.has only one cause: too much money chasing too few goods. high unemployment and slow economic growth. Without food and energy. yesterday's producer price report (finished-goods prices up 7. Samuelson. Excluding the temporary surges after Katrina.the general rise of most prices -. January's year-to-year increase was 2.1 percent. though unwanted and hurtful to many. may perversely aggravate inflation and lead to much harsher recessions later. when the full CPI rose at a 6.

points out. The settling stagflation will result in a global economic collapse.. World trade plummets. in Commerce and Business Administration) and Louisiana Tech University [MBA] as well as advanced graduate studies at New York University School of Business in economics. chief economist at BMO Nesbitt Burns. He taught economics and finance in several universities in the United States. they risk inflation. taken from Bloomberg. Federal Reserve and the Bank of Canada are in a holding pattern. while the European Central Bank raised key rates by a mere quarter of a percentage point last week.2 per cent in May. Pg. A16. but it is the latest available.S. That means that other G8 countries "are now more vulnerable than ever to a punishing slowdown. and is now retired and lives in northern California. U. and the greater fear is that it could turn into a 1930s scenario of economic activity spiraling downward. as in the U. is far from obvious. Africa. Governments and their central banks may be cautiously feeling their way. would be met by retaliation of our former partners in the developing world. Beta Gamma Sigma. G8 leaders should concentrate on how to co-ordinate their resistance to a recession in a time of escalating inflation. is a little outdated in what to expect in terms of real growth. This they will do. and the new ones will be soon! The table below (click to enlarge). Other nations cannot insulate themselves from the collateral damage. All Rights Reserved The Globe and Mail (Canada). If central banks cut their rates to stimulate demand. however. It’s a horror of a scenario. growth was a piddling 1 per cent in the second quarter. e. But the economy has become a more urgent matter in recent weeks. in the form of trade embargoes.S. and Latin America.S. higher tariffs and inflated currencies. and Euroland. there is no agreement about the severity or longevity of the downturn. and not be much better in 2009. Consumers are hoarding their cash for essentials such as gasoline and buying far fewer imports from other nations.) will blame everyone else and begin pulling back from their bilateral and multilateral trade agreements. U. now or then. 7/8/08 EDITORIAL. they could choke growth. The Globe and Mail. In this quandary. The old giants are staggering. Zarefsky Juniors 2008 74 . the developed nations (the U. Stagflation will not be a purely local affair for us.) a barrel and the housing sector keeps plummeting.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Stagflation kills Economy 74 US stagflation could harm other major economies due to collateral damage. trade and energy. and the heady times of ever expanding world economies comes to an end.S. Seeking alpha. This scenario unfolds like this: to protect themselves. and increasingly that of many others. If they raise rates. as oil prices bob above $145 (U.S. but it is not clear they are working in tandem. As Sherry Cooper. trying to protect their domestic workforce from falling real wages and businesses from the effects of higher commodity prices.com/article/84368-stagflation-and-the-limits-of-growth Regardless of where you look.S. the summits have come full circle. to these dilemmas. And while there are no instant answers. He is a member of the honorary scholastic society. http://seekingalpha. and writes on financial matters.S. With today's economic crises. There never is. Hendon. In my view. there are clouds either overhead. in turn. Copyright 2008 The Globe and Mail. Of course. He continues advising a small clientèle on portfolio construction. and probably Europe will decline for 2008. or on the horizon and blowing towards shore.S. Asia. Those G8 discussions should not sideswipe their consideration of climate change. a division of CTVglobemedia Publishing Inc.g. economic woes are steadily deepening." The solution. 7/10/08 Ray Hendon has business degrees from the University of Alabama (B. This. statistics and finance. real GDP growth in the U. while inflation hit an annual 4. as in Europe. and it did happen in the early stages of the 1930s depression. THE G8 SUMMIT. consideration of macroeconomic conditions is already on the agenda. But slower times are upon us. the U.

and on more than 35 radio programs. This dynamic of a rising bottom line and a stagnant top line shrinks profit margins. When the United States largely fed its own addiction. Meanwhile. He is the author of three books: Forbes Greatest Business Stories of All Time (Wiley.S. production has fallen from 3. CNN. Stagflation implies a rise in fixed costs and inputs (food.4 million barrels in 2006. Zarefsky Juniors 2008 75 .9 billion barrels in 2006. the payments are more likely to wind up in government coffers in Venezuela. author. co-authored with Davis Dyer. Bull Run: Wall Street. We also import much more oil today than we did in the 1970s. According to the Department of Energy. and Russia. 1851-2001 (Oxford University Press. There's a final reason why even a mild case of stagflation can prove fatal: leverage.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Stagflation kills Economy 75 Stagflation will be bad for several sectors of the economy. Unfortunately. 3/6/08 http://www. Daniel Gross is a journalist. political economy. A graduate of Cornell University. Gross has appeared on CNBC. and the New Politics of Personal Finance (PublicAffairs. then it's a killer.4 million barrels in 1980 to 12. In 2001. 2000). C-SPAN. he was a fellow at the New America Foundation. in American history from Harvard University. The News Hour with Jim Lehrer. He has worked as a reporter at The New Republic and has contributed to more than 60 publications. 2001). net daily imports have risen from 6. the semi-annual management journal published by New York University’s Stern School of Business.S.M. If your entire business model consists of borrowing huge sums of floating-rate or short-term debt and using it to buy other assets or debt instruments that tend to decline in value when inflation rises and growth stalls. If you have a lot of debt. and editor who specializes in business history. a horrible combination results. the price of money itself) coupled with slowing growth in sales and revenues. and if much of that debt is floating-rate or short-term debt. and Generations of Corning: 150 Years in the Life of a Global Corporation. 1996). Gross. Fox News Channel.slate. the Persian Gulf. that's exactly what the financial-services sector and the American homeowner have been doing for the last several years. Since 1999. he has edited STERNbusiness. U. including NPR’s Fresh Air with Terry Gross (no relation). energy. the high prices Americans paid at the pump were generally recycled into the domestic economy. Gross holds an A.2 billion barrels in 1980 to 1. and can prove fatal. annual U. He writes the “Moneybox” column for Slate and contributes to the “Economic View” column of the New York Times.com/id/2185919/ . the Democrats. and the money culture. Today.

so large are the country's debts. however. To be sure.com." Rate hikes could also make an already tough lending environment even tougher.co. often at a higher rate than traditional banks. The world has now changed. for capital.com/2008/06/26/news/companies/banks_margins/#TOP. Zarefsky Juniors 2008 76 ." said Hanweck. Telegraph. which oversees about $750 million in assets. as the markets have now reluctantly concluded." Banks with well- positioned balance sheets would be able to weather a rising rate environment. Gerald Hanweck. both large and small. a vice president at A. growth rates will slow. Best who oversees the bank rating group. http://money. So weak is the US currency.7 per cent last month. "They are right on the edge and [higher rates] could tip them into losses. In previous years. Banks should fear a rate hike Typically. CNN Money.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Fed Rate Hikes [1/2] 76 If inflation becomes a threat The Fed’s only choice to avoid stagflation will be to raise interest rates. these big banks are also more affected by rate hikes because they tend to rely more on so-called wholesale funding sources. S. a finance professor at George Mason University's School of Management." It doesn't help Bernanke that his predecessor has the brass neck to offer advice he refused to follow himself. The debt market is highly sensitive to changes in interest rates. And the only way you can truly contain inflation is by raising rates. a rate increase would not affect every bank in an identical way. a principal at Greenwood Capital Associates in Greenwood.xml The Fed has long been able to lower interest rates despite inflationary pressures..jhtml?xml=/money/2008/06/01/ccliam101. Rising interest rates would also lead to even more intense competition for deposits. smaller banks could be the ones who get stung the most. the possibility of rate hikes down the road is not an encouraging sign. banks could compensate for rising rates by relaxing their underwriting standards to increase loan volume or attract new borrowers. In a recent private seminar. The dollar's reserve currency status has traditionally given the US central bank room for manoeuvre.com . and so powerful is this "structural" oil price shock that even an overtly political central bank like the Fed can no longer do what it wants. But for an industry that's already dealing with a host of problems. in recent years.uk/money/main. by forcing the Fed to raise rates just when the broader economy so badly needs them to fall. such as the debt market. for cnnmoney. Many online banks and brokerages have been offering their own interest bearing money market accounts. to tighten their underwriting standards. Nowadays. "Some of these banks right now are barely profitable.C. So this inflation spike will harm the US not only via escalating costs and lower spending power but. US rates must rise. By Liam Halligan. In fact. heightened regulatory scrutiny and rising loan losses have prompted banks. 6/2/08 US staring at double-dip recession as calls for higher interest rates grow. But if the Fed were to shift to an inflation- fighting stance and start raising rates. warns that smaller banks already grappling with exposure to bad mortgages could be in the deepest trouble. I heard Greenspan say: "If we allow inflation to re-emerge.telegraph. http://www. staff writer. But with producer price inflation above 6 per cent and one-year inflationary expectations hitting a record 7. notes Michael Nix.cnn. 6/26/08 David Ellis. The Banking Economy would be devastated by rate hikes.M. And consumers aren't doing a lot of borrowing nowadays even with rates as low as they are. he said the impact of rising rates could "vary from region to region and bank to bank. But banks' interest rate pain wouldn't end there. living standards will suffer and we could well see US stagflation. And financial institutions that aren't as threatened by fierce competition for deposits would also be able to withstand rate pressure. he noted. notes Khanh Vuong.

There also exists this risks of an across the board loss of confidence in the banking system culminating a series panic runs on US banks accompanied by a collapsing US Dollar as the US national debt levels explode as the liabilities of these failing banks are taken over by the government and depositors / investors seek shelter in more secure currencies and assets such as the precious metals. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. even going so far as the government seeking to buy the banks stock so as to put a floor under the share prices. which given that today the US is experiencing the worst housing market crisis since the Great Depression may be in for an even worse fate. Nadeem Walayat has over 20 years experience of trading. a FREE Daily Financial Markets Analysis & Forecasting online publication. Nadeem is the Editor of The Market Oracle. which means should anywhere near the number of anticipated banks fail then the US Tax payer will be forced to step in to the tune of several hundreds of billions of dollars if not for over a trillion dollars. The New York Times estimates that as many as 150 banks could go bust and thus requiring the Fed to step in to seize assets during the next 12 month with many of the remaining banks cutting back on their branch networks.The question now being raised is who will be next on the list to go bust. US Treasury Secretary Hank Paulson stepped in to try and reassure the market that the banks were able to meet to day to day financing operations.html. The FDIC currently has some $53 billion of funds available to pay depositors of defaulting banks of which upto $8 billion has now been eaten up by Indymac.uk/Article5461. However this estimate may still be just the tip of the banking crisis iceberg as the Savings and Loans crisis of the early 1990's witnessed the number of bank failures explode that eventually saw more than 1000 financial institutions go bust. The Market Oracle 7/14/08 US Banking Crisis Goes from Bad to Worse.marketoracle.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Fed Rate Hikes [2/2] 77 A Banking collapse would destroy the economy. including one of few who both anticipated and Beat the 1987 Crash. Meanwhile at the same time another far bigger crisis was unfolding as Freddie Mac and Fannie Mae that insure or manage more than half of US mortgages were also on the brink of collapse.co. This 'ms-information' was followed on Sunday by a U-turn by the Federal Reserve and Treasury Department by making unlimited funds available to both critical institutions so as to prevent their collapse. Nadeem Walayat. The problem the US banking system now faces is that the failure of Indymac. and bailout of Fannie Mae and Freddie Mac to prevent a far worse collapse are not an isolated instance but systemic of the whole banking system. http://www. Zarefsky Juniors 2008 77 . analysing and forecasting the financial markets. ? The crisis in the US banking sector echoes around the world as many banks have seen capital bases eroded by well over 50% due to exposure to toxic US mortgage backed securities that continue to default in ever increasing numbers which has resulted in the credit freeze as increasingly cash starved banks fear lending money to one another due to the increased risk of default. The Federal regulators stepped in to seize the assets and guarantee 100% of the first $100k of depositors money.

anyone? Zarefsky Juniors 2008 78 . food will get more expensive. Senior Writer for Salon. citing a stat that's often mentioned in peak-oil circles: In our era of industrial agriculture. the oil is going! http://www.salon.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Food Price is alt cause 78 Oil prices cause an increase in food prices. a systems analyst for a large transportation company. "But the bad news is people are likely to come here not just because of the food but because it will be too hot or cold where they live. honored as one of the top 25 Women on the Web. The fear is that the rising price of oil will drive us to rely on other fossil fuels. Friedemann remarks that there are home-court advantages to being so close to California's fertile Central Valley. and destroying the atmosphere in the process. the peak oilers. oil and coal to produce one calorie of food. a consultant. "The good news is we're near the food. a teacher. draining those as well. business. it takes 10 calories of fossil-fuel inputs for fertilizers. who tonight include a computer programmer. She's been studying the history of agriculture in California and learning sustainable farming techniques. and the environment [The oil is going.html] Over red wine and a potluck dinner of hummus and salads. pesticides. where she covers technology. Katharine: American journalist and graduate of Yale University." Friedemann says. a retired engineer and a recent college grad." Grapes of wrath.com. "As energy gets more expensive. farm equipment and transportation from natural gas." she says. listen intently to the first speaker: Alice Friedemann. Mieszkowski 06.com/news/feature/2006/03/22/peakoil/index.

when the cost of oil rose from a nominal price of $3 before the 1973 oil crisis to around $40 during the 1979 oil crisis. Let's put this into perspective: while it had previously taken 24 years (1947-1971) for the CPI to double. one of the most respected sources for financial information [“What is the relationship between oil prices and inflation?” http://www. a Forbes Digital Company.30 by the end of 1980. The reason why this happens is that oil is a major input in the economy . Investopedia 08. As oil prices move up or down.it is used in critical activities such as fueling transportation and heating homes .investopedia.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Alt Causes (general) 79 Inflation is specifically driven by oil because it’s used in almost every aspect of our economy. then it will cost more to make plastic. For example.com/ask/answers/06/oilpricesinflation.20 in early 1972 to 86. The direct relationship between oil and inflation was evident in the 1970s. This helped cause the consumer price index (CPI). and a plastics company will then pass on some or all of this cost to the consumer. a key measure of inflation.asp] The price of oil and inflation are often seen as being connected in a cause and effect relationship. to more than double from 41. which raises prices and thus inflation. one of the Internet's largest sites devoted entirely to investing education. during the 1970s it took about eight years. Zarefsky Juniors 2008 79 . inflation follows in the same direction.and if input costs rise. so should the cost of end products. if the price of oil rises.

with the actual annual budget deficit running out of control at $4. I have been a private consulting economist and. cum laude. traditional fiscal stimulus in the form of tax cuts or increased federal spending have reached their practical limits.shadowstats. “That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. out of necessity. had to become a specialist in government economic reporting. in Economics. Despite minor changes to the system.A.com/article/292. For more than 25 years. Walter J. where they cannot easily or rapidly address the underlying problems.B. Debt expansion and savings liquidation both were encouraged by the investment bubbles created by Alan Greenspan. Both those factors are short-lived and have reached untenable extremes. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad).0-plus trillion per year. From the standpoint of the federal government. where he was named an Edward Tuck Scholar.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Fed Will Balance 80 The fed will be unable to stop the hyperinflation. During his career as a consulting economist. government reporting has deteriorated sharply in the last decade or so. unable to maintain their standard of living. "John" Williams was born in 1949. and my results led to front page stories in the New York Times and Investors Business Daily. even if standard economic stimuli were available. -. This circumstance places both the federal government and the Federal Reserve in untenable positions. 4/8/08 Shadow Government Statistics. and was awarded a M. The only way that personal consumption — the dominant component of GDP — can grow in such a circumstance is for the consumer to take on new debt or to liquidate savings.B. from Dartmouth College in 1971. Williams. considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. John has worked with individuals as well as Fortune 500 companie. he knew that economic growth could not be had otherwise. He received an A. http://www.John Williams” The effect of this structural change has been that most consumers have been unable to sustain adequate income growth beyond the rate of inflation. Part of what is happening today is payback for those policies. from Dartmouth's Amos Tuck School of Business Administration in 1972. Zarefsky Juniors 2008 80 .

In Zimbabwe. From a practical standpoint. Back in 2000. John has worked with individuals as well as Fortune 500 companie. however. Unfortunately. in Economics.S. He received an A.99 per gallon of gas.A. the electronic quasi-cashless society of today also would shut down early in a hyperinflation. the Fed estimated that 50% to 70% of U. "John" Williams was born in 1949. cum laude.shadowstats.John Williams” Therein lies an early problem for a system headed into hyperinflation: adequate currency. and was awarded a M. from Dartmouth College in 1971.S. Where the vast bulk of today’s money is not physical. Think of the time.S.5% of M3. or as an alternate currency free of the woes of unstable domestic financial conditions.B. unless it were part of an overall restructuring of the domestic and global financial and currency systems. and goods often are available only on the black market. out of necessity. Given the extremely rapid debasement of the larger denomination notes. but production lead time is a problem. credit card lines would need to be expanded daily. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad). -. the government would have to produce rapidly an extraordinary amount of new cash. where he was named an Edward Tuck Scholar. I also noted on a recent cross-country trip that a large number of gas stations have older pumps that cannot register more than two digits’ worth of dollars in their totals or more than $9. In terms of cash. however. or even problems with the recent early shift to daylight savings time. for example. “That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. new bills of much higher denominations would be needed. the bulk of roughly $780 billion in currency outside the banks is not in the United States. chances of the system adapting here are virtually nil. Despite minor changes to the system. http://www. Systems would have to be adjusted for variable. currency would disappear. intended for some dual internal and external U. I have been a private consulting economist and.B. but electronic. or roughly 1. or whatever ratio was needed to make the new currency meaningful. from Dartmouth's Amos Tuck School of Business Administration in 1972. From a practical standpoint. Zarefsky Juniors 2008 81 . at least for a period of time in the early period of a hyperinflation. During his career as a consulting economist. considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. there is not adequate currency in the US to adjust and stop the problem.S. where something akin to hyperinflation is underway. work and effort that went into preparing computer systems for Y2K. Conspiracy theories of recent years have suggested the U. dollar cash was outside the system. While I have been advised that a number of businesses have accounting software that can handle any number of digits. If such indeed were the case.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Econ Self-Balancing 81 If hyperinflation occurs. and electronic commerce would have to be able to adjust to rapidly changing prices. but such would not resolve any long-term problems. For the system to continuing functioning in anything close to a normal manner. rather than fixed pricing. 4/8/08 Shadow Government Statistics. For more than 25 years.com/article/292. government reporting has deteriorated sharply in the last decade or so. The rest of the dollars are used elsewhere in the world as a store of wealth. and my results led to front page stories in the New York Times and Investors Business Daily. then there might be a store of "new dollars" that could be released at a 1-to-1. had to become a specialist in government economic reporting. dollars are used to maintain some semblance of economic activity. this circumstance rapidly would exacerbate an ongoing economic collapse. That number probably is higher today.000 ratio. with limited physical cash in the system. the number of digits used in tallying dollar-denominated transactions would need to be expanded sharply. with perhaps as little as $200 billion in physical cash in circulation in the United States. U.000. existing currency would disappear quickly as a hyperinflation broke. Williams. Where the Fed may hold roughly $210 billion in currency (sharply increased in the last year) outside of $50 billion in commercial bank vault cash. dollar system. where wages and salaries seriously lag inflation. Government already has printed a new currency of red- colored bills. Walter J.

Simon Chair. He has held numerous academic appointments. Zarefsky Juniors 2008 82 . the standard of living it measures goes down. He was Associate Editor of the Wall Street Journal.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: high consumer spending disproves 82 US consumers don’t feel the weak dollar and inflation since the government manipulates data and china hasn’t dumped the dollar .html .Paul Craig Roberts. If the price of steak rose. Assistant Secretary of the Treasury during President Reagan’s first term. including the William E. The U. The prices of the goods from China have not risen because China keeps its currency pegged to the dollar. Inflation doesn't go up. This is just one of the many ways that the government pulls the wool over our eyes. In order to hold down Social Security payments. China's currency goes with it. Center for Strategic and International Studies. Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy.S. so far Americans have been sheltered from the greatest effects of the dollar's declining value. thus holding down price rises. Instead. and Senior Research Fellow. if the price of steak rises. Georgetown University. 3/26/08 Watching the Dollar Die. Our largest trade deficit is with China. and is the co-author with Lawrence M. With the dollar value of the euro rising through the roof. In the old measure. Stanford University. inflation tracked the nominal cost of a defined standard of living. Today.creators. Thanks to China. inflation rate is about twice as high as the government's inflation measures report.YET Paul Craig Roberts. http://www. today a vacation in Europe is far more costly than in the past.com/opinion/paul-craig-roberts/watching-the-dollar-die. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington. As the dollar goes down. He was awarded the Legion of Honor by French President Francois Mitterrand. up went the inflation rate. Hoover Institution. the government changed the way it measures inflation. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice. the government assumes that people switch to hamburger.

The 2001 tax rebates failed to coax consumers into spending. Gas ignites inflation.which accounts for the biggest chunk of gross domestic product --. BYLINE: GOVIND HARIHARAN. economy struggles with a possible recession. but will in fact stop it. Compared with 2001. especially to lower-income households. This time around.65. in 2001. Despite the government’s stimulus package." Most recently. the Labor Department said Tuesday.6 percent increase in May. debt-burdened households that are shopping more at Wal-Mart than at Target. slightly lower than expectations. Price increases hit 27-year high while consumer spending gets little lift from stimulus Soaring costs for gasoline and food pushed inflation at the wholesale level up 1.1 percent in June.000 since July 2006.962. empirically proven. Over the past 12 months. the survey found.and thereby boost employment and incomes as businesses rush to meet increased demand. with their follow-up survey showing similarly low levels of spending. The Atlanta Journal-Constitution. Americans are putting less into retirement savings. Zarefsky Juniors 2008 83 . Slemrod found in their research in 2001 that only about 22 percent of households planned to spend their rebates.S. All Rights Reserved. Meanwhile 43 percent said they have tapped into their savings to get by. was better behaved in June.2 percent. University of Michigan economists Matthew D. 2008 Thursday. even though the government was mailing out billions of dollars in economic stimulus payments. For the Journal-Constitution Millions of households started receiving their gift checks from the federal government two weeks ago as part of the economic stimulus package signed into law earlier this year. The checks are making their way into bank accounts as the U. The underlying belief is that such payouts. and 26 said they have had to rely on credit cards. 65 PERCENT OF CONSUMERS CUTTING BACK ON SPENDING. wholesale prices are up 9.that cash-strapped consumers will go out and spend their windfall.84 percent.S. in reality the tax rebates won't do much to help the ailing economy get back on its feet. a softening job picture. Consumers are seriously worried about their jobs and the economy.the first close below 11. Final Edition. households. recession fears have brought about a populist response from the federal government in the form of rebates and other "gifts. soaring oil and commodity prices that are stoking fears of inflation. Any extra dollars that end up in their pockets will certainly not be used for discretionary spending. leaving inflation rising over the past year at the fastest pace in more than a quarter-century. 2008 Wednesday . to 10. Main Edition. Ever since the Great Depression. the weakest showing since February. consumers are locked into saving the money. SECTION: FINANCIAL. Inc. another period when soaring energy costs were giving the country inflation pains. prices of bare necessities such as food and oil are much higher.54 -. as the economy entered a recession. Less than half of respondents use a household budget. tax rebate checks of between $300 and $600 were mailed out to about two-thirds of U.and enticements from retailers offering free rebate-check cashing.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Consumer Spending Turn 83 The Current oil driven inflation will not spur consumer spending. which excludes energy and food. For June.2 percent. Pg. the price of unleaded regular gasoline surged by 9 percent following an even bigger 9. and a volatile stock market. Shapiro and Joel B. 5/15/08 The Atlanta Journal-Constitution. or 0. and the debt levels of households have risen just as home. Stimulus hopes misplaced.8 percent in June. Sixty-five percent of those responding to the poll said they cut back their spending. a survey to be released today by Country Financial found. coupons and added value to gift cards --. Core inflation. and 62 percent said they have put less money into savings or retirement to cope with the current economy. energy prices at the wholesale level shot up by 6 percent. July 16. The economy is crippled by a housing crisis and credit crunch of alarming proportions. cutting back on spending and relying on credit cards to help them deal with tougher economic times. May 15. the macroeconomic picture is bleaker. Ailing economy has spending spree unlikely. Retail spending edged up just 0. The Dow Jones industrials fell 92. The reports contributed to a volatile day on Wall Street. the largest year-over-year surge since June 1981. will stimulate consumer spending --. 45. Chicago Sun-Times. a weak dollar that makes imports more expensive. Chicago Sun Times. Your Wallet. 7/16/08 Copyright 2008 Chicago Sun-Times. But despite hopes --. rising by just 0.

” ** this card may be later than 03. saving is just as much a form of spending as consumption. Mark Skousen is a college professor.columbia. there was no date given. Mark Skousen has built a reputation for not only accurately identifying the right economic and political trends. in economics and a focus on the principles of free-market capitalism and "Austrian" economics. Both are necessary to the foundation of wealth and prosperity.” Or --“Tax cuts for the wealthy are ineffective because the wealthy spend less than the middle class.” --“Consumer spending represents two-thirds of the economy. Avoid statements such as: -. Thus.” --“Increasing saving won’t help the economy. But consumer spending should not be promoted at the expense of saving and investment. but also the right investments for the times. He's made his unique sense of market and investment trends known and respected in the financial world.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Consumer Spending Turn 84 Stopping consumer saving in order to spend more is bad since saving is better for the economy’s long term welfare. With a Ph. and in some cases. Mark Skousen.and has often been proved right. Mark Skousen has often gone contrary to the crowd in his investment choices and economic predictions -.edu/ipd/j_gdp. WHICH DRIVES THE ECONOMY: CONSUMER SPENDING OR SAVING/INVESTMENT?. a better form of spending when it fulfills a need for more capital and investment.” Remember that saving is an important ingredient to economic performance over the long run.gsb. Tax cuts that encourage saving and investment more than consumption are not necessarily bad.“Tax cuts won’t stimulate the economy if they are saved. Skousen 03** http://www2. It is vital to have a proper balance in the economy between consumption and saving/investment. Be wary of statements such as: --“Consumer spending drives the economy. only a different form of spending.html.D. but 03 was the latest date cited in the article Zarefsky Juniors 2008 84 . prolific author and world-renowned speaker.

Business and Media 07 [“A Ho-Hum Christmas Already?” http://www. etc] and become more productive. which exalts consumer spending. said Wolfram.” Kling continued.” But some economists disagree about how important excessive spending really is to the economy. which. permeates discussions of the economic outlook. who heavily influenced economic theory in the 20th century and beyond. of course. improving our economy in the long run. is the holiday season where two-thirds of consumer spending is allocated to economic growth. ‘we are all Keynesians now. “The idea that the economy needs consumer profligacy is not nearly as entrenched among scholars as it is among journalists. Zarefsky Juniors 2008 85 . this is a “ … very . Hillsdale College professor and BMI adviser Gary Wolfram explained the problem with Keynesian economics this way: “It is true that at any point in time. Kling was referring to economist John Maynard Keynes.” “But none of those scholarly arguments matters.” As Maria Bartiromo explained on NBC’s “Today” October 31.” What actually happens when people stop spending? They deposit money in banks. In President Nixon's phrase. Economist and author Arnold Kling wrote in January 2006.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Turn: Consumer Spending Bad 85 Consumerism actually hurts the economy in times of recession. but that doesn’t mean that if we stop consuming it will reduce GDP. In fact.businessandmedia.’ That means that folk Keynesianism. Keynesian theory advocated government intervention and promoted spending rather than saving. which in turn loan money to businesses that use it to produce capital goods [buildings. there is a strong case to be made that we would be better off if we had less consumer spending and more saving. inventory. very important part of the year.org/articles/2007/20071107142509. saving is key to long-term improvement. consumption makes up a large portion of the total GDP [70-75 percent].aspx] You can often hear the media say that consumer spending “is critical to economic growth. politicians. Economist. and other citizens.

The shift to more frugal consumption patterns would be like a change in tastes. They have less debt. Either one. not like the beginning of a recession. if he's got a fever. whether it's VHS tapes.com/does-living-frugally-hurt-the-economy] When I advocate for frugal living. What if everyone suddenly became frugal. Some recessions are business-led. The result is that the frugal household is more stable. Any change in consumer's tastes--deciding that they want less of anything. yes there probably would be a bit less total economic activity. of course. more savings. simply because they're nervous. We may lose a bit of economic activity--but what we lose is worth losing. I don't think a shift toward frugality will make a big difference--if everyone is already reduced to focusing on just the necessities. If the economy is underperforming. if the economy is overheated.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Turn: Consumer Spending Bad 86 Frugality results in stability. But it doesn't kick off a downward spiral. So. would that look like a consumer-led recession. the downsides may be real. with consumers cutting back first and businesses responding to falling sales with layoffs. but I don't think so. (Xin Lu lays out this case in her post from a few months ago. So. If everyone were a bit more frugal. It's kind of like hesitating before giving someone an aspirin: Won't it cause his temperature to fall? Well. Otherwise. So. that the exact result depends a great deal on the economic situation at the moment the change takes place. The people who are unemployed have less money to spend. On the other hand. and more room in the budget to handle a drop in income. people sometimes ask.) I think. Zarefsky Juniors 2008 86 . Frugal people are less vulnerable to this. becoming more frugal isn't much of a change. though. because there's a natural point of stability: the point where the consumers are buying whatever it is they now want. with falling sales leading to layoffs. leads directly to the other. yes it probably will. WiseBread 5-10-08 [“Does living frugally hurt the economy?” http://www. and layoffs leading to cash-strapped consumers choosing to be even more frugal? It's a question that's hard to answer. the upsides are potentially huge.wisebread. the question is: If everyone suddenly decided to be more frugal. camera film. They don't panic when their neighbor loses his job--because they don't need to. and there's no automatic mechanism to stop the downward cycle. but I think they're small. if everyone is more frugal. What we gain is more secure households and a more sustainable economy. A lot of the harm in a recession comes from fear. Others are consumer-led. but even people with jobs start to cut back. In much the same way. "What if everybody lived like that? Wouldn't it hurt the economy?" My natural inclination toward frugal living may color my opinion. I think mass frugality would be good for the economy. It seems like a win to me. or incandescent light bulbs--is hard on the businesses that produce those things. with businesses cutting back first and consumers following because their paychecks are smaller and they can see that their jobs are at risk. probably not. It's a valid concern. rooted in the way recessions and depressions start. then a shift to frugality will probably slow it down. And a community of stable households is a more stable community. I feel comfortable advocating frugality.

But even if this observation is correct. no longer living off capital gains. Maybe the "new economy" has rendered the US economy more flexible and resilient so that the traditional relationship between dollar depreciation and inflation no longer holds. As Asian central banks curtail their purchases of US Treasury securities and sell some of their existing holdings. The answer. Foreigners will therefore keep selling dollars until it narrows. Unfortunately. as the dollar falls. we have not seen anything like this yet. The falling dollar will bring this about by tending to drive interest rates up. the Federal Reserve will have to raise interest rates faster than currently expected. Narrowing the US deficit will therefore require some combination of increased savings and lower investment. fears of significantly higher interest rates are exaggerated. The historical data say that a 10 per cent fall in the dollar produces 3 additional percentage points of inflation. They will have a negative impact on asset valuations. this happy observation is not the end of the story. SECTION: COMMENT. Moreover. there will be upward pressure on US Treasury yields. USA Edition 2. But where? Europe is stagnant. The implication. Perhaps. Japan and Germany) are simply too small to make a difference. and the European Central Bank has shown no awareness of the need for monetary stimulus. Clearly. presumably.suggest only a modest increase in inflationary expectations. Treasury inflation-protected securities spreads .Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2 Dollar Decline Good: = recession 87 A declining dollar causes a severe recession. In response. is unavoidable. the UK. Financial times. At the root of the dollar's decline is the view that the US current account deficit is unsustainable. Why the dollar's fall is not to be welcomed: BARRY EICHENGREEN:. Japan's modest recovery will disappoint now that it has to raise taxes to control its own spiralling debt. Countries outside the Group of Four nations (the US. The implication is that the correction of the US current account deficit that is now getting under way will mean a recession not just for the US but for the rest of the world. 15 The question is whether or not it is already too late for a smooth adjustment. Zarefsky Juniors 2008 87 .the difference between yields on conventional Treasury securities and Tips . which in turn implies a 450 basis-point increase in the discount rate. and it will cool off more as it allows its currency to strengthen. 04 Financial Times (London. England). will have to start saving again. The current account is the difference between savings and investment. Higher interest rates will make borrowing more expensive and slow investment growth. The question is whether there is anyone to take up the slack. there will be upward pressure on US import prices and more inflationary pressure generally. Pg. the current account deficit will narrow. including house prices. For the world economy to avoid a serious downturn. that the US economy will slow or more likely succumb to recession. With investment down and saving up. This conclusion is so obvious that the only question is why the markets are not forecasting it already. it just means that the dollar will have to fall further to generate enough inflationary pressure to force the Federal Reserve to raise interest rates. December 20. The optimists who are welcoming the dollar's fall should think again. China is cooling off. less consumption and investment in the US will have to be offset by more consumption and investment elsewhere. 2004 Monday . This in turn means that the dollar will keep falling until US inflation heats up to the point where the Fed does indeed have to raise interest rates. is that investors do not believe that the dollar's decline will produce a significant increase in inflation. BYLINE: By BARRY EICHENGREEN. A significant decline in both consumption and investment will mean a recession in the US. then. US households.

A convincing elevation of the dollar in the policy priority list for both the Fed and the Treasury would be the single greatest step that either institution could take in restoring health to the financial system. Thus.S. FP17. where the capital- markets risk was concentrated in a handful of thinly capitalized large banks. the systemic risk posed by the failure of one or more of these institutions is minimal compared with the moral hazard and longer-term inflation risks we incur from their bailout. 2008 Thursday . our deficits will only be ameliorated by a slowdown in liquidity creation itself. the elasticity associated with our exports and imports are very low. The Wall Street Journal. growth and stock-market happiness has begun to take precedence over maintaining the value of money. National Edition.S. the pool of distressed asset buyers waiting in the wings would result in a needed consolidation of the financial-services industry. dollar strength is a far better indicator as to the appropriate stance of monetary policy than "core" inflation. but any attempt by the Fed to ease at the expense of further dollar declines will likely snatch defeat from the jaws of victory. The recession risk is high because of a breakdown in the absurd system that developed for the packaging and underwriting of debt. In the meantime. consumer). consumer). wink) policy has never been articulated by either institution with any real conviction. Doesn't a failure to respond aggressively to the credit crisis by cutting rates too slowly risk a recession. Trust is the most powerful currency. To say that one is either the cause or consequence of the other is almost laughable. or a Japan-like breakdown of the world's financial system? Unfortunately. Because of increasingly specialized world trade. currency will cost us dearly in terms of both price stability and jobs in the long run. and markets have rightly sensed that maintaining employment. and risk a global inflation of significant proportions over the next several years. without systemic failure. Zarefsky Juniors 2008 88 . and the excess liquidity that developed from the combination of that system and a highly stimulative monetary policy. and we have been the shopping destination for the world's consumers even before the dollar began its recent fall. Sadly. Our external deficits are largely measures of Federal Reserve and banking-system liquidity creation. where trust is your most powerful policy tool. BYLINE: Bill Wilby. The inflationary consequences of that gamble are now here. retail prices for the world's goods are lower here. after-tax terms). Our "strong dollar" (wink. These foreign purchases prop up retail sales (helping to explain the resilience of the U.S. our current account deficit for a year is equal to only a fraction of the dollar's foreign-exchange trades for a day. Moreover. depress our measured savings rate.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2 Dollar Decline Good: A2 trade def 88 A weak dollar risks damaging the economy. Just such a slowdown is likely now underway as a result of the mortgage crisis as we enter 2008. The Fed took a gamble on inflation to ward off what was perceived as a deflationary threat in 2001-02. the recession risk is high. but not because of high interest rates (which are currently negative in real. and any recession will likely be mild and short.S. the dimensions of the Fed's great dilemma would be much less acute had the Fed and Treasury officials not taken such a cavalier approach to the U. our accounting deficits are largely with our own overseas subsidiaries (more than 50% of world trade is intra-company trade) and reflect an increasingly globalized world economy. Thus a falling dollar is likely to increase the dollar amount of our imports (the infamous J-curve). and force the bulk of the adjustment to currency moves into the "income effect" that results from our higher bills (witness the impact of higher oil prices on the U. In a world of fiat currencies. But don't we need a lower dollar to "correct" our large trade and current account deficits? In the first place. U. Any further loss of confidence in the U. National Post (f/k/a The Financial Post) (Canada). and result in an underreporting of U. Those consequences will be much easier to deal with now. dollar over the past eight years. America is the shopping mall for the world. January 24. rather than later. The ability of currency moves to correct trade deficits or surpluses depends on the elasticity of demand and supply. Second. While we might see a number of hedge funds and some isolated banks fail. the very growth of the credit-derivatives market that is the source of the current crisis in the United States has also resulted in a wide dispersion of risk in the financial system. as it will imply a higher level of interest rates to maintain a given monetary stance. Pg. instead of core inflation. dollar risks. exports and an exaggerated measure of our imports (some significant share of our imports are actually bought by foreigners).S.S. SECTION: FP COMMENT. Because our distribution system is the world's most efficient. and will not be able to sove for a trade deficit. with the petrodollar monetary merry-go-round fuelled by the weaker dollar. just as the dollar's exchange rate is a function of foreign trust in holding dollar cash or near-cash balances as a monetary store of value (these balances are the lion's share of our so-called foreign debt). Unlike Japan. so the Fed should concentrate on dollar strength.

Within the US. but it would inflict enormous losses on countries that have amassed large quantities of dollar reserves. economy forces a declining dollar to actually hurt exports. but this does not necessarily mean that it will decline to the point where it ceases to function as world currency.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2 Dollar Decline Good: A2 trade def 89 The uncompetitiveness of the U. both from the US and from its major creditors. but this now seems unlikely.S.(19) Zarefsky Juniors 2008 89 . given how uncompetitive US industry has become.html All this has weakened the US dollar.net/free/rohini_marinella30012005. There are contradictory pressures.sacw.(18) More importantly. the devaluation of those reserves is already hitting them. and while countries like India (and smaller economies) may hold much smaller quantities. China and Japan alone hold about a trillion dollars. there could be hopes that a weaker dollar would spur exports. South Asian Citizens Web 05 US DOLLAR HEGEMONY: THE SOFT UNDERBELLY OF EMPIRE (AND WHAT CAN BE DONE TO USE IT!) http://www. the US deficits shrink as the dollar declines. in a speech where he seemed to accept the inevitability of the dollar decline in order to help ease US deficits. and would hit them even more if the dollar crashes. This would be a boon to the US so long as the dollar retained its role as world currency. Federal Reserve Chairman Alan Greenspan summed up the US dilemma in November 2004.

If the US attempts to fight the rapidly gaining forces of deflation by encouraging a depreciating dollar. The results of such a reappraisal could be anything from mildly damaging to catastrophic. sometimes precipitously. it will export deflation to the rest of the world because foreign currencies will rise relative to the dollar. reconsider its involvement with US assets. the world may. declines. Zarefsky Juniors 2008 90 . at some point. Champion 03. Seventy-five per cent of the world’s central-bank assets are held in US dollars (as Treasury bonds).Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Dollar Decline Good: A2 trade def 90 A weak dollar is NOT good – prefer our evidence because it assumes their warrants. it is a fair assumption that the US will take the easy route and worry about the global fallout later. while the long-term damage to the global economy will become apparent only with the passage of time.htm] For many years the US has been the economic engine for the world. such as Treasury bonds. Scott: international finance expert for Share International [“Will a US dollar collapse end American hegemony?” http://shareno. Now the US itself is in trouble. and when there is too much of something the price or value usually drops. standing in as purchaser of last resort for the world’s supply of goods in times of global economic distress. Since the short-term benefit of a weak dollar to US corporations’ earnings will show up quickly. If confidence in the dollar or dollar assets. The world economy is awash in dollars. These bankers do not want their primary asset to suffer a significant decline. The problem with this approach for the Bush administration is that there are great risks to a weak dollar policy.net/dollarcollapse. This will damage foreign economies and inhibit their ability to buy goods and services. including those from the US.

Our scenario would be a sharp drop resulting in recession. U. manufactured goods represent between 70 and 80 percent of U.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: Dollar Decline Good: A2 trade 91 Their scenario assumes a gradual decline of a dollar. Christian E. Ideally. Whatever happens to the trade deficit has direct ramifications for manufacturing. Weller 04. this should help to shrink the record U. a lower value of the dollar may be welcome.html] Under the right set of circumstances. If the dollar declines too fast.S. imports become more expensive.S. whereas U.” http://www. To maximize the benefit of a dollar decline for the economy. exports become more competitive. After all. the decline has to be gradual and consistent. Zarefsky Juniors 2008 91 .S. trade deficits. When the dollar falls. former research staff at the Economic Policy Institute [“The Dollar's Decline in Perspective.S.org/issues/2004/11/b256346.: Senior Fellow at American Progress and an Associate Professor of Public Policy at the University of Massachusetts Boston. it can lead to rapid inflation and thus to higher interest rates followed by a recession – the hallmarks of a currency crisis. trade.americanprogress.

Roberts 8-13-07. so much US production has been moved to China that many items on which consumers depend are no longer produced in America. China has many markets and can afford to lose the US market easier than the US can afford to lose the American brand names on Wal-Mart’s shelves that are made in China. The US cannot. American consumers are as dependent on imports of manufactured goods from China as they are on imported oil. Paul Craig: Assistant Secretary of the Treasury in the Reagan Administration. block the import of goods and services from China without delivering a knock-out punch to US companies and US consumers. Indeed. the profits of US brand name companies are dependent on the sale to Americans of the products that they make in China. and Scripps Howard News Service [“China's "nuclear option" to Dump the Dollar is Real. former editor for the Wall Street Journal. Business Week. the US is even dependent on China for advanced technology products. in retaliation.com/artman/publish/article_2293. If truth be known. In addition.shtml] The notion that China cannot exercise its power without losing its US markets is wrong. Zarefsky Juniors 2008 92 .Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: China no dump b/c dependence 92 Not true – it’s actually the other way around.” http://onlinejournal. Forbes Media Guide ranked him as one of the top seven journalists in the United States in 1993.

and Scripps Howard News Service [“China's "nuclear option" to Dump the Dollar is Real. Speculators. American economists make a mistake in their reasoning when they assume that China needs large reserves of foreign exchange.com/artman/publish/article_2293. Zarefsky Juniors 2008 93 . The question. the creditors would be pleased to be paid in yuan as the currency is thought to be undervalued.shtml] Now let’s examine the University of Wisconsin economist’s opinion that China cannot exercise its power because it would result in losses on its dollar holdings. the prices of bonds would decline. Indeed. whether this cost is greater or lesser than avoiding the cost that Washington is seeking to impose on China. and China’s remaining holdings would be worth less.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand A2: China no dump (generic) 93 China wouldn’t hesitate to dump: no foreign currency and no trade deficits. Business Week. and. former editor for the Wall Street Journal. is whether this is of any consequence to China. there is not enough yuan available to trade. and does not need reserves in other currencies with which to pay its bills. are trying to capture future gains by trading "virtual yuan. China does not allow its currency to be traded in currency markets. Roberts 8-13-07. or even cease to purchase new Treasury issues. Paul Craig: Assistant Secretary of the Treasury in the Reagan Administration. China does not need foreign exchange reserves for the usual reasons of supporting its currency’s value and paying its trade bills.” http://onlinejournal. however." The other reason is that China does not have foreign trade deficits. Forbes Media Guide ranked him as one of the top seven journalists in the United States in 1993. It is true that if China were to bring any significant percentage of its holdings to market. if China had creditors. betting on the eventual rise of the yuan’s value. Indeed. if it is.

China needs to readjust the current structure. the US Government's outstanding debt stood at US$7. the proportion of China's trade volume with the United States. Experts estimate that the recent US dollar devaluation has caused more than US$10 billion to be wiped from the foreign exchange reserve. Experts predict that following its increasing imports in the wake of its economic recovery and continuing high oil prices.6 billion. Zarefsky Juniors 2008 94 . Obviously. accounting for 67.4 billion and US$314 billion respectively. dollar continues to weaken.9 per cent less than that in the previous year.3 billion by the end of 2003. making it harder for the central authorities to conduct macro- economic regulation. has dropped by 40 per cent since its peak period and it lost 20 per cent of its value against the euro last year alone. if it is to remain relatively stable. Given the huge US current account deficit.76 billion) to purchase the US dollar.8 per cent of the US gross domestic product (GDP).6 per cent and 37.586 trillion. has deteriorated the US current account balance. FDI that flowed into the United States was US$174. since the Chinese trading regime requires its foreign trade enterprises to convert their foreign currencies into yuan. As the Japanese economy fares better. economic cool-down. China's foreign exchange reserve was US$165. The high concentration of China's foreign exchange reserve in US dollars may also incur losses and bring risks." Given the deteriorating relations between the United States and the Arab world. the worsening fiscal deficit will put great pressure on the stability of the US dollar. From a domestic perspective. Besides. must be backed up by an influx of foreign direct investment (FDI). If the bubble bursts. global direct investment began to shrink and US-oriented direct investment also decreased. China will suffer great financial losses. It is still too early to conclude if the US dollar is heading towards a crisis. the US policy that restricts exports of high- tech products. Its rate against the euro. for example. About two thirds of the reserve is dominated by the US dollar. As the dollar goes down. It is becoming more and more evident that the possibility of a further slump of the US dollar is increasing. Jiang: director of the Department of International Economic under China Foreign Affairs University [“Crisis looms due to weak dollar. China will suffer further loss. seen from the perspective of foreign trade relations. Another factor behind the risks of a US dollar slump is the weakened role of the so-called "oil dollar. it put in 32. By the 2004 fiscal year.7 billion respectively.chinadaily. If the so-called US dollar crisis happens.4 billion before it soared to US$403. the authorities should consider taking prompt measures to ward off possible risks.6 billion. the Japanese Government tends to back away from the market.9 trillion yen (US$298. coupled with overly active domestic consumption and the oil trade deficit caused by rising oil prices. In China's case. it has not taken any steps to swing its foreign exchange market. more Japanese yen may also become an option. much lower than investment in domestic projects.5 per cent.com. If an "oil euro" is to play an ever increasing role in international trade.4 per cent respectively. invasion of Iraq and anti-terrorism endeavours have abruptly turned the surplus into a US$459 billion deficit. Internationally." Since China holds huge amounts of US-dollar- denominated foreign exchange reserves. could be another alternative. This will exert more pressure on the already serious inflation situation. But it is an indisputable fact that it has gone down continually. could cost China's capital dearly. To ward off foreign exchange risks. http://www. it rocketed to US$286. The large-scale tax cuts. which exceeds the internationally accepted warning limit. the United States will hardly see its current account balance improve. its rapidly increasing foreign exchange reserve will incur substantial losses if the US the US dollar will suffer. US$283. Reportedly Russia is also going to follow suit. In recent years. By the end of June this year. Starting from 2001. China will suffer serious losses. the United States enjoyed a US$127. Moreover. To deter the Japanese yen's appreciation and promote exports. In 2001 when the Bush administration was sworn in. however.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Weak Dollar  China Dump 94 China will dump the dollar—high concentration of Chinese exchange in weak dollars and possible geopolitical risks have them looking for alternatives such as the Japanese currency Ruiping 04.9 billion. Due to high expectations of US treasury bonds. 28. During the 1992-2001 period. FDI into the United States was 44. By the end of 2002. In 1998. In 2003 alone. the US dollar makes up too large a proportion of China's foreign exchange reserves. the figure soared to US$473. quite a few Middle Eastern oil-exporting countries have begun to increase the proportion of the euro used in international settlement. such as oil reserves. which accounts for 3. And using US assets to increase the strategic resource reserves. international investors used to eagerly purchase the bonds. 1999 and 2000. Japan and Europe to its total trade volume was 36. the average US current account deficit was US$189.htm] Many international institutions and renowned scholars have recently warned that the possibility of a US dollar slump is increasing and may even lead to a new round of "US dollar crisis. the more yuan the Chinese authorities will need to put in the market. China could also encourage its enterprises to "go global" to weaken its dependence on US treasury bonds.” 9/28/04. which has been endangered by the huge US current account deficit. however. the Japanese Government's intervention in the foreign exchange market may become less frequent following the gradual recovery of the Japanese economy.9 billion and US$530. the reserve was registered at a staggering US$470.4 billion.3 billion surplus. The low earning rate of US treasury bonds. Considering the improving Sino-Japanese trade relations.3 per cent of its GDP. The intervention constituted a major deterrent to US dollar devaluation. increasing the proportion of the euro in its foreign exchange reserves. In 2002 and 2003.cn/english/doc/2004-09/28/content_378317. which leads to bubbles in US treasury bond transactions. the more foreign exchange reserves China accumulates. In 2003. During the January-June period this year. The decrease in FDI will put more pressure on the US dollar. This poses a great threat to a stable US dollar. the US dollar. the Japanese Government used to intervene in the foreign exchange market to keep the yen at a relatively low level. which is only 2 per cent. At the end of 2000. investing most of its foreign exchange reserves in US treasury bonds also holds great political risks. The deteriorating current account deficit of the United States is another factor menacing the future fate of the dollar. Since April.

the dollar index has lost over 6 points.counterpunch. vice chairman of China’s National People’s Congress. To the contrary.20 — a new all-time low. China signaled that it was not going to be bullied or pushed around. and Scripps Howard News Service." The Chinese message is different.10 — 26-year high versus the dollar Canadian dollar: $1. It is something that some of us have known for a long time. Roberts.D. dollar. The Chinese made no threats.S. At some point. but the Treasury has no foreign currencies with which to redeem its debt. He is a former editor and columnist for the Wall Street Journal. the allusion was enough to spook traders. Berkeley.html.47 — an all-time high versus the dollar Pound: $2. What is different is that China publicly called attention to Washington's dependence on China's good will. and will readjust accordingly.agorafinancial. China Threatens to Dump the Dollar. In 1992 he received the Warren Brookes Award for Excellence in Journalism. “We will favor stronger currencies over weaker ones. and if matters go from push to shove. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists in the United States] What the two officials said is completely true. By doing so. and Oxford University where he was a member of Merton College.org/roberts08102007. And that was all she wrote for the U.9 cents — gained over a cent overnight. He is a graduate of the Georgia Institute of Technology and he holds a Ph. and More!. Here’s the breakdown: Euro: $1. Michael Jackson’s Foreclosure. one of the officials said. the dollar is losing its status as the world currency. but as we write. Zarefsky Juniors 2008 95 . 17. He served as an Assistant Secretary of the Treasury in the Reagan Administration earning fame as the "Father of Reaganomics".10 — rose almost 2 cents in one day. at the same conference. the dollar index fell an entire point overnight.” said Xu Jian. By PAUL CRAIG ROBERTS. is an economist and a nationally syndicated columnist for Creators Syndicate. Profit-taking has since chased down several of these currencies from their peaks. http://www. 8/9/07 [China's Threat to the Dollar is Real.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Weak Dollar  China Dump 95 China will dump US dollar in favor of strong currencies Agora Financial 07 [“Dollar Plummets. Business Week. "China doesn't want any undesirable phenomenon in the global financial order. The way the Treasury pays off the bonds that come due is by selling new bonds. Washington can expect financial turmoil. Paulson can talk tough. Since the Fed cut the discount interest rate on Aug. a new all-time high Australian dollar — 93. yesterday. Gold and Oil Skyrocket. from the University of Virginia.com/5min/dollar- plummets-gold-and-oil-skyrocket-china-threatens-to-dump-the-dollar-michael-jacksons-foreclosure-and-more/] “The world’s currency structure has changed. The message is that Washington does not have hegemony over Chinese policy. all remain above previous highs. they will dump it. While China has yet to formally announce a change in its foreign exchange reserves. to a new 23-year high Yen: 113 — gained a full point versus the dollar to 2-month highs The dollar fell against every other actively traded currency… 16 in all. a hard sell in a falling market deserted by the largest buyer. China is clear that if the dollar continues to decline.” confirmed Cheng Siwei. He was a post-graduate at the University of California. http://www. For its part.” 11/7/07. to 75. you’d expect to see a healthy contrarian rally… but there’s nothing stopping bearish sentiment today. a Chinese central bank vice director.

dollar open to potentially such a rapid and massive decline. dollar. He received an A. In the near future. The biggest problem he had had was getting adequate cash to the troubled banks to cover depositors. out of necessity. Again. considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. Prior to gimmicked methodologies making the reporting of disposable personal income largely meaningless. He had had some personal experience with a run on banks in his region and explained how the Fed had a special team designed to handle such a crisis. having dinner with a former regional Federal Reserve Bank president and the chief economist for a large Midwestern bank. government reporting has deteriorated sharply in the last decade or so. with heavy foreign investment in the dollar fleeing the U. Although such is not likely much before 2010. given the federal government’s effective bankruptcy. During his career as a consulting economist. with brief periods of stability as seen at the moment.A. cum laude. During his career as a consulting economist. Despite minor changes to the system. where he was named an Edward Tuck Scholar.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Weak Dollar  Hyperinflation 96 Due to a devaluating dollar. from Dartmouth College in 1971. cum laude. a barter system is the most likely circumstance to evolve for regular commerce. John has worked with individuals as well as Fortune 500 companie. Treasuries.com/article/292. “That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. and was awarded a M. “That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. Therein lies the ultimate basis for the pending hyperinflation.S. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad). in Economics.B. the concerns of the electorate have been dominated by pocketbook issues. from Dartmouth's Amos Tuck School of Business Administration in 1972. having to fly cash in by helicopters to meet the local cash flow needs. currency for safety elsewhere. Shy of the rapid introduction of a new currency and/or the highly problematic adaptation of the current electronic commerce system to new pricing realities. triggering the early phases of a monetary inflation.B. Such would make much of the current electronic commerce system useless and add to what would become an ongoing economic implosion.S. and dumping of U.S.S. The United States in a hyperinflation would experience the quick disappearance of cash as we know it. Walter J. Government Cannot Cover Existing Obligations. So I queried the regional Fed president as to what would be happening if the rumors were true.A. the current circumstance will evolve into a hyperinflationary depression.com/article/292. http://www. considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. selling of the greenback has been intense. and was awarded a M. from Dartmouth's Amos Tuck School of Business Administration in 1972. that measure was an excellent predictor of presidential elections. Williams. Historically. Despite minor changes to the system. "John" Williams was born in 1949. That process will build over time. 4/8/08 Shadow Government Statistics. Some years back. -. from Dartmouth College in 1971.John Williams” In response to the rapidly deteriorating fundamentals underlying the value of the U.B. "John" Williams was born in 1949. He received an A.S. the Federal Reserve — now touted as the formal financial market stabilizer — will be forced increasingly to monetize federal debt. With the domestic financial markets and U. and my results led to front page stories in the New York Times and Investors Business Daily. I have been a private consulting economist and. 4/8/08 Shadow Government Statistics.John Williams” It is this environment that leaves the U. as discussed in the section U. where he was named an Edward Tuck Scholar. self-feeding cycle of currency debasement and hyperinflation. and my results led to front page stories in the New York Times and Investors Business Daily. government reporting has deteriorated sharply in the last decade or so. As discussed later. Williams. Lack of Physical Cash. hyperinflation will hit hard. that the Federal Reserve would be forced to monetize significant sums of Treasury debt. -. Treasuries so heavily dependent on foreign capital for liquidity. in Economics. What lies ahead for the current year will be severe enough and financially painful enough to affect the outcome of the 2008 presidential election. Market rumors that day had been that there was a run on a major bank in the City by the Bay. http://www. For more than 25 years. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad). this likely will not be a deflationary environment as seen during the Great Depression. that financial end game for the current markets will tend to come sooner rather than later and will break with surprising speed when it hits. Zarefsky Juniors 2008 96 . dollar selling should build towards an extreme. then great depression. The weak dollar would trigger hyperinflation that would cause the economy to collapse inward. Walter J. or after 2018. I happened to be in San Francisco.S.B. had to become a specialist in government economic reporting.shadowstats.shadowstats. In this environment annual multi-trillion dollar deficits rapidly would feed into a vicious. but contained. John has worked with individuals as well as Fortune 500 companie.

Roberts served on the congressional staff where he drafted the Kemp-Roth bill and played a leading role in developing bipartisan support for a supply-side economic policy. and Research Fellow at the Independent Institute.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Paul Craig Roberts Is Awesome 97 Paul Craig Roberts is one of the most qualified authors on the subject. Senior Research Fellow at the Hoover Institution. In 1992 he received the Warren Brookes Award for Excellence in Journalism. In 1987 the French government recognized him as "the artisan of a renewal in economic science and policy after half a century of state interventionism" and inducted him into the Legion of Honor. Simon Chair in Political Economy at the Center for Strategic and International Studies. and he was awarded the Treasury Department’s Meritorious Service Award for "his outstanding contributions to the formulation of United States economic policy. he is a nationally syndicated columnist for Creators Syndicate in Los Angeles and a columnist for Investor’s Business Daily. He was Distinguished Fellow at the Cato Institute from 1993 to 1996. During 1981-82 he served as Assistant Secretary of the Treasury for Economic Policy. From 1982 through 1993. A former editor and columnist for The Wall Street Journal and columnist for Business Week and the Scripps Howard News Service. he held the William E. Olin Fellow at the Institute for Political Economy. In 1993 the Forbes Media Guide ranked him as one of the top seven journalists. Zarefsky Juniors 2008 97 .vdare.com/roberts/bio." From 1975 to 1978.htm] Hon. Paul Craig Roberts is the John M. VDare 08 [“PAUL CRAIG ROBERTS. President Reagan and Treasury Secretary Regan credited him with a major role in the Economic Recovery Tax Act of 1981.” http://www. Stanford University. Dr.

com/article/SB121642068083866453.and sometimes appear to be understated.5% to 9. Much of this takes the form of seed money for local government projects. In view of all this. yet they do so. Chinese municipalities have no legal right to borrow. That brings the debt-to-GDP ratio to around 45%.80 trillion are about 51 times larger than its sovereign foreign-currency debt. but they substantially understate the country's obligations. but their modern economies apparently can withstand that much stress. Beijing's hidden obligations could trigger crisis at home and perhaps panic abroad. a large portion of gross domestic product -. China hasn't included central government debt incurred for municipal and other local projects.: lawyer and author. moreover. The Coming Collapse of China [“How Big Is China's Debt?” http://online. The passage of time isn't the only reason these figures probably understate local obligations. according to a January 2006 World Bank report. Yet we should perhaps add to the ratio three percentage points for Beijing's obligations to multilateral institutions and foreign governments and maybe 10 percentage points for central government debt incurred for lower-tier governments. well below the internationally recognized alarm level of 60%. still some distance from the international alarm level. the debt of the world's most populous nation equaled 21. Unfunded mandates from Beijing are also a continuing problem. These two items inflate China's ratio to more than twice the 60% level.html?mod=googlenews_barrons] HOW MUCH DEBT IS THE CHINESE GOVERNMENT CARRYING? Official statistics show that Beijing is solvent. No developing nation has escaped a financial crash. So we may find out soon what happens when Beijing dumps a trillion dollars of foreign assets all at once to pay off its hidden obligations at home. A half-decade ago. given China's size. and it is well structured in that most of it is denominated in Chinese currency and is long term. There is. Chang 7-21-08. best known for his book. Gordon G. although they're not economically viable. especially where there has been fraud -. Yet.is attributable to the state's fiscal stimulus. debt extended by the World Bank and other institutions or governments. Local provinces. such as grain-subsidy payments.perhaps as much as a quarter -. Ministry of Finance guarantees related to partial bank recapitalizations. China probably also has incurred undisclosed obligations for military expansion. Rural governments are also in a pinch because Beijing has ended the agricultural tax and other levies in order to relieve peasants of onerous financial burdens. many explicitly or implicitly guaranteed by local authorities. in its official figures. Beijing's numbers are becoming less transparent as time goes on.1% of GDP at the end of 2007.3% of 2002 GDP. but current estimates are considerably lower -. its instrumentalities and state banks. The nation's foreign-exchange reserves of $1. Premier Wen Jiabao. at least theoretically. We just don't know the full extent of Beijing's indebtedness. Argentina defaulted about a half-decade ago when its debt equaled about 55% of GDP. and such debts. cities and municipalities also have incurred substantial indebtedness. The rest of the world should be concerned because a financial shakeout in China undoubtedly would have global consequences. about a trillion dollars of nonperforming and questionable loans on the books of the Ministry of Finance. which many expect after the Olympics. The national social security system is grossly underfunded. often issuing bonds through conduit companies or taking loans from local banks. local governments seem to be illicitly taking on obligations at about the pace of GDP growth." and miscellaneous obligations. borrowings by China Development Bank and two other "policy banks. A Chinese Finance Ministry's report in March noted that the central government had 5. These governments are supposed to make good on pension shortfalls. especially as Beijing continues to extend subsistence payments.23 billion at the then-prevailing exchange rate) in debt at the end of 2007. Beijing analysts who labeled local debt a potential mine field recently stated that such obligations could amount to a trillion yuan ($146 billion). there's no magic to this much-watched figure. one report put the amount of debt issued by lower-tier governments at $600 billion.barrons. has offered these governments little financial compensation for the loss of crucial revenue. the Organization for Economic Co-operation and Development issued a study stating that local debt probably ranged from 3. Best estimates indicate that provinces and lower-tier governments have incurred unrecorded debt equal to roughly 10% of GDP. for instance. "sizable" but not precisely known. Cities' off-budget liabilities are. In February 2006. And less than 5% of Chinese government indebtedness is external.a common occurrence these days. Of course.21 trillion yuan ($714. Italy and Japan have debt loads exceeding 100% of GDP.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Brink: China Dump 98 China may dump within the next few months to cancel hidden foreign debts. In the Chinese economy. Zarefsky Juniors 2008 98 . but we do know that there is a worrisome trend in its borrowing habits: The central government has been increasingly relying on off-balance-sheet financing. That amount is modest. however. China's ratio doesn't include still other obligations. are also obligations of the central government. Based on official numbers. But in the next Chinese downturn.

the 2001-2002 bear market when the S&P 500 index fell 44%. and the Indian rupee's sharp appreciation against the U. authored a book on global investing. Better to stand firm on price and sell into global markets on the basis of what is great about American products – superior quality.2 billion into the market in September alone. in Tokyo. investors seem to like a weaker dollar since the profits of American multinationals get a boost from foreign earnings being translated into U. seeking alpha.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Dollar Decline Crushes Econ: 6 Reasons 99 The dollar decline is bad for 6 reasons. Second. market in 1987.in effect . the more global equities rise.S.S. Hong Kong & Sydney. investors are pouring money into global funds .5bn during July. Treasury consultant. This is what we are doing to the brand of America by trying to increase exports by lowering their price in the global marketplace. as an international economist with the U. The Brazilian real. Representative to the Asian Development Bank.with net inflows of $96. dollar investors' returns in those markets. dollar during the past year.com/article/50529-seven-reasons-why-a-weak-dollar-hurts-america. In London with BancBoston. 10/19/07 http://seekingalpha. 20 years of experience in the global investment business. I have taught international business at the University of Colorado. I recognize the need to stay objective. Zarefsky Juniors 2008 99 . Tokyo. securities by a record amount as the credit squeeze intensified. Why should investors and central banks around the world invest in US assets when their value is steadily declining? Third.94 billion into world equity funds so far in 2007. Again. and U.a reduction in real income. have supercharged U. notes and equities – were $69. dollar this year.S.S. dollars. and was a Japanese Government Scholar at Keio University in Tokyo. Fifth. Brazil's local stock exchange. and as a private client advisor with a subsidiary of the Union Bank Of Switzerland (UBS). this is short-term thinking and vastly overstated since most multinationals have sophisticated treasury departments that hedge currency exposures.S.” First. according to the latest Treasury figures. He is a graduate of Fletcher School of Law & Diplomacy and a Fellow at Keio and Sophia University. as a member of the Executive Board of Directors of the Asian Development Bank in Manila. business leaders know that discounting prices may bump near term revenue and profits but at a real cost to long term profitability not to mention inflicting damage to the brand name. What a weaker dollar really does is to encourage American and international investors to invest in non-American markets. Joint Economic Committee. Foreign investors slashed their holdings of U. dollar as the world’s reserve currency. New York and Sydney with an investment subsidiary of Northwestern Mutual. the Bovespa. Delfeld. also the benefits of its decline are short term and exaggerated.3bn in August after a revised inflow of $19. which has jumped 18% in value against the U. a weaker dollar is inflationary since it increases the cost of imports. Sixth.S. The Treasury said net sales of US market assets – including bonds. Treasury. The more the dollar drops. innovation and service.S. More importantly. the chances of a weaker dollar leading to a sharp reduction in America’s trade deficit is highly unlikely since 40% of the current deficit is due to oil imports that are denominated in US dollars. to look for value throughout the world and at all costs avoid fads and trends. Financial.6 billion out of U. National Committee on Pacific Economic Cooperation. According to EPFR Global. The August outflow exceeded the previous record decline of $21. a Forbes Asia Columnist. 10/19/07 Mr. a weaker dollar weakens the role of the U. Hong Kong. Many Asian currencies are hitting record highs against the U. as a consultant to the U.S. Fourth.2bn in March 1990. while taking out $9. the Asian crisis in 1997. The Australian dollar has climbed to a 25 -year highs.S. aweaker dollar translates into a cut in the real spending power of American consumers . dollar. been a member of the U. I have the experience of being through the many cycles of investing: the crash of the U.S. while the Singapore dollar has touched 10-year highs. Delfeld has held positions as ETF Specialist with Union Bank of Switzerland. stockbroker in Tokyo. An additional 20% is due to trade with China which is of course controlling the value of its currency. U.S.S. reported that investors have injected $1. equity funds.S.S.

The US used this leverage to force through economic changes and political arrangements that secured a liberal economic order after several decades of state driven development. threats of regional hegemony by renegade states.html] Control of global liquidity by the American state is therefore a crucial aspect in which American hegemony has surpassed its British predecessor. was weighted based upon contribution size with the US making the largest contributions. and low-level conflicts. The general goal of US actions during this period was to assert US control over the sources of international liquidity and ensure that it was sufficient but limited. U. With threats currently mounting to that status the actions it takes now are of immense importance. 111-2) Borrowers of IMF funds were forced into deflationary programs to rectify their payments imbalances and to generate revenue for repayment. The IMF voting structure. leadership would help preclude the rise of another hostile global rival. 71. one can see in this history the importance of political action in securing that status. The US ensured for itself the continued privileges and power that accrue to it as a result of its currency status. 19) The status of top capital market was transferred from London to New York. leadership would therefore be more conducive to global stability than a bipolar or a multipolar balance of power system. economically and monetarily. but because a world in which the United States exercises leadership would have tremendous advantages. Recipients of Marshall Plan aid were highly discouraged from using IMF loans.S. but control was transferred to Washington by means of the power of the Federal Reserve and US political dominance of major global monetary institutions such as the IMF. The US. as an international lender. this is the best long-term guiding principle and vision. pursuing inflation and devaluation. The US would not have had the same unilateral ability to spread global deflation as it did in the early 1980s when it wanted to enforce strict fiscal discipline on the third world and increase reliance upon direct US aid. Second. Had the dollar been displaced by an internationally created asset the US would suddenly be subject to the same harsh economic discipline other states were. Block 1977. and the rule of law. First. US action to limit and control the international financial institutions created after World War II did more than simply symbolize the extent of American hegemony.democracy. but of Imperial Britain in the nineteenth century as well. The US consolidated its position as the central actor in global economic regulation through political clout. The US failing to maintain its monetary power would not only signal hegemonic weakness. Parboni 1981. 2. RETHINKING GRAND STRATEGY.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Hegemony 100 Dollar strength is the key determinant of US hegemony Mephi 06. in some cases institutionalizing its power. 84) <Under the third option. The result is global nuclear exchange Khalilzad 95.A. The IMF. Silver and Ahmad 1999. including a global nuclear exchange.(O'Brien and Clesse 2002.(Arrighi 1994. free markets. unsupported by other central banks. therefore. Such a vision is desirable not as an end in itself. from Wesleyan University [“The Power of International Money: The Dollar & Empire. such as nuclear proliferation. U. It would have denied the US the extraordinary ability to greatly influence the global economic environment. financial analyst focusing on international economics for Sociology.S. (Arrighi. 278-9.blogspot. 111-4) In this way fiscal discipline was imposed on much of the world and the US increased its leverage through control of global money creation. 94) Had the US failed to establish its control over global liquidity in the post-war period it would have had more significance than simply signaling weakness in American hegemony. 64) In the post-war era global security and monetary institutions served American hegemony “like the blades in a pair of scissors. Finally.” http://le-enfant-terrible.(Block 1977. would inevitably weaken American political control were it to be a truly multilateral institution. Pg. furthering the Europeans reliance on the US during post-war reconstruction.com/2006/11/power-of-international-money-dollar. On balance. 38) While Strange argues that a Top Currency is determined on almost purely economic grounds. 18.” (Arrighi. Defense Analyst at RAND (Zalmay. used its power to limit access to IMF credit and to make loans conditional. the global environment would be more open and more receptive to American values -. the dollar’s value would have gone into free fall. which could potentially create international money(5) or at least international liquidity. Silver and Ahmad 1999. 18. No. B. The US took strong action in the post-war period to establish a liberal economic order backed by a strong American presence—politically. American political control would have been reduced as states had new sources of lending and New York’s prominence as a financial market was reduced. (Hopkins and Wallerstein 1996. Zarefsky Juniors 2008 100 . "Losing the Moment? The United States and the World After the Cold War" The Washington Quarterly. enabling the United States and the world to avoid another global cold or hot war and all the attendant dangers. Had the US then acted as it did during the late 1960s and 1970s. for example. Vol. the United States would seek to retain global leadership and to preclude the rise of a global rival or a return to multipolarity for the indefinite future. it would create it. 87) These two systems enabled the United States at the height of its hegemony to govern the globalized system of sovereign states to an extent that was entirely beyond the horizons. such a world would have a better chance of dealing cooperatively with the world's major problems.(6) (Birnbaum 1968. not just of the Dutch in the seventeenth century.

many forces are coming together that could lead to a collapse of the US dollar. the world would witness the end of American hegemony. central bankers. Zarefsky Juniors 2008 101 .net/dollarcollapse. to cease buying Treasury securities and to liquidate those they own. In addition. many of the world’s financiers. for whatever reason. the need to fight deflation. They well know that the continued recycling of capital into US assets serves. continuing stock-market declines. Among these are its oversupply. If the people who control the world’s capital were to decide. low interest rates. Scott: international finance expert for Share International [“Will a US dollar collapse end American hegemony?” http://shareno. Were this to happen. and a potential derivatives meltdown [see Share International May 1990] It is highly likely that in the not-too-distant future all of these factors will come into play simultaneously.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: XT: Hegemony 101 A declining dollar would result in a dollar dump. and government officials cannot be pleased with the economic and foreign policies of the Bush administration. ending American hegemony. to allow the US to dominate the world. Champion 03.htm] Today. at least in part. the dollar would collapse and the US would experience an unprecedented economic shock.

Prior to the final economic collapse. are almost certain to be released. escalating it significantly.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Dollar Dump (Economy) 102 A Chinese dollar dump would result in economic collapse.attacks Taiwan. US Army.uk/money/main. June 12. at least for many decades. CEO of CTEC Inc. the only chance a nation has to survive at all is to launch immediate full-bore pre-emptive strikes and try to take out its perceived foes as rapidly and massively as possible. the stress on nations will have increased the intensity and number of their conflicts.xml] Two officials at leading Communist Party bodies have given interviews in recent days warning . The real legacy of the MAD concept is this side of the MAD coin that is almost never discussed.. Shifts in Chinese policy are often announced through key think tanks and academies. Director of the Association of Distinguished American Scientists [Tom. including U. As an example. are already on site within the United States itself.for the first time . under such extreme stress conditions. Retired LTC. As the studies showed.that Beijing may use its $1. Economic collapse leads to extinction.telegraph. Zarefsky Juniors 2008 102 .33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Described as China's "nuclear option" in the state media.jhtml?xml=/money/2007/08/07/bcnchina107a. rapid escalation to full WMD exchange occurs. Or suppose a desperate China -.S.org/techpapers/Unnecessary%20 Energy%20Crisis.” http://www. to the point where the arsenals of weapons of mass destruction (WMD) now possessed by some 25 nations. Today. such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels. Without effective defense. forces there. It is estimated that China holds over $900bn in a mix of US bonds. Ambrose: international business editor of the Daily Telegraph [“China threatens 'nuclear option' of dollar sales. adversaries and potential adversaries are then compelled to launch on perception of preparations by one's adversary.cheniere. a great percent of the WMD arsenals that will be unleashed.whose long-range nuclear missiles (some) can reach the United States -. and perhaps most of the biosphere. It would also cause a spike in US bond yields. suppose a starving North Korea launches nuclear weapons upon Japan and South Korea. in a spasmodic suicidal response.doc] History bears out that desperate nations take desperate actions. the mutual treaties involved in such scenarios will quickly draw other nations into the conflict.co. hammering the US housing market and perhaps tipping the economy into recession. once a few nukes are launched. In addition to immediate responses. “The Unnecessary Energy Crisis: How to Solve it Quickly.” http://www. Evans-Pritchard 07. Bearden 2k. Strategic nuclear studies have shown for decades that. The resulting great Armageddon will destroy civilization as we know it.

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

US-Sino coop good (5 mpx) 103

Sino-American coop results in Asian stability, economic growth and solves for terror, prolif, and disease.
Wenzhong 04, Zhou: Chinese ambassador to the United States
[“Vigorously Pushing Forward the Constructive and Cooperative Relationship Between China and the United States -- In commemoration of the 25th anniversary of China-US
diplomatic relations,” http://china-japan21.org/eng/zxxx/t64286.htm]

China's development needs a peaceful international environment, particularly in its periphery. We will continue to play a
constructive role in global and regional affairs and sincerely look forward to amicable coexistence and friendly cooperation with all other
countries, theUnited Statesincluded. We will continue to push for good-neighborliness, friendship and partnership and dedicate ourselves to
peace, stability and prosperity in the region. Thus China's development will also mean stronger prospect of peace in the Asia-
Pacific region and the world at large. China and the USshould, and can, work together for peace, stability and prosperity in
the region. Given the highly complementary nature of the two economies,China's reform, opening up and rising economic size
have opened broad horizon for sustained China-US trade and economic cooperation. By deepening our commercial
partnership, which has already delivered tangible benefits to the two peoples, we can do still more and also make greater
contribution to global economic stability and prosperity. Terrorism, cross-boundary crime, proliferation of advanced
weapons, and spread of deadly diseases pose a common threat to mankind. China and the US have extensive shared
stake and common responsibility for meeting these challenges, maintaining world peace and security and addressing
other major issues bearing on human survival and development.Chinais ready to keep up its coordination and cooperation in
these areas with theUSand the rest of the international community. During his visit to theUSnearly 25 years ago, Deng Xiaoping said, "The
interests of our two peoples and those of world peace require that we view our relations from the overall international situation and a long-term
strategic perspective." Thirteen years ago when China-US relations were at their lowest ebb, Mr. Deng said, "In the final analysis, China-US
relations have got to get better." We are optimistic about the tomorrow of China-US relations. We have every reason to believe that so long as
the two countries view and handle the relationship with a strategic perspective, adhere to the guiding principles of the three joint communiqués
and firmly grasp the common interests of the two countries, we will see even greater accomplishments in China-US relations.

Zarefsky Juniors 2008 103

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

[NEG] Prices Falling 104

Oil prices are set to fall – multiple warrants.
Reynolds 6-6-08, Alan: Senior Fellow at the Cato Institute, former Director of Economic Research at the Hudson Institute, served as Research
Director with National Commission on Tax Reform and Economic Growth, advisor to the National Commission on the Cost of Higher Education
[“Get Ready for the Oil-Price Drop,” CATO Institute, http://www.cato.org/pub_display.php?pub_id=9450]

The price of crude oil has jumped as high as $135 lately, up from $87 in early February. The news encouraged some Wall
Street analysts to suggest oil might approach $200 before long. In fact, that's quite impossible: The world economy
can't handle current energy prices, much less a big increase. Which in turn means that oil prices will fall. Market
analysts often claim oil prices are almost entirely determined by supply. Demand is said to be insensitive ("inelastic") to price.
The standard example is that many Americans have to drive to work and most gas-guzzling SUVs will still be on the road even if the affluent
few can trade theirs for a Prius. Whatever the price, we'll pay it. This idea rests on two fallacies. The first is to exaggerate the
United States' importance when it comes to ups and downs in worldwide oil demand. In fact, America is using no more
oil than we did in 2004. The second fallacy is to greatly exaggerate the importance of passenger cars in the United
States. It's true that Americans are driving less and buying four-cylinder cars - but that's not where we should be looking for serious "demand
destruction." Two-thirds of petroleum in the United States is used for transportation - but half of the transportation sector's fuel flows into commercial trucks, trains, buses,
airplanes and ships. As a result, only 44 percent of each barrel of oil is used to produce gasoline in this country, and some of that gasoline fuels business - delivery vans, landscapers'
trucks, fishing boats, industrial and farm machinery, etc. Most crude oil is used to produce diesel fuel for trucks, ships and trains, heavy fuel oil for industry, aviation fuel, asphalt, home
In short, a huge share of crude
heating oil, propane, wax, and innumerable petrochemical products ranging from detergents and drugs to synthetic fabrics and plastic.
oil is used to produce and distribute industrial products. That explains why the price of oil is extremely cyclical - that
is, it tends to rise during economic booms and fall during contractions. It dropped 44 percent in the last recession (from November 2000 to November 2001), 48
percent from October 1990 to January 1992 - and 71 percent from July 1980 to July 1986. Oil prices have a huge impact on producers' cost of production - profits and losses - not just
on consumers' cost of living. Firms that can't raise prices will find profit margins squeezed - and will have to cut back on production and jobs. Even if some producers of energy-
intensive products can raise prices enough to cover higher energy costs, they'll nonetheless sell fewer of their products because of those higher prices. So they too will have to cut back
Nine out of 10 previous postwar recessions began shortly after a big spike in the price of oil. Yet
on production and jobs.
those recessions always slashed oil prices dramatically. People who have been predicting both a nasty US recession
and $200 oil prices are contradicting themselves. Recent news reports have expressed surprise that the US economy appears much
stronger than the famously gloomy predictions at the start of the year. Indeed, the surprising endurance of US manufacturing and exports is one
reason oil prices rose as long as they did. But note that a US recession isn't required to bring down the price of oil. All that's
needed is industrial stagnation or decline in many other countries. In the United States and Britain, industrial production is
nearly flat - only 0.2 percent higher than it was a year ago. In many other countries, however, industrial production has dropped over the
past 12 months. It's down by 0.7 percent in Japan, 1.1 percent in Austria, 2.5 percent in Italy and Denmark, 2.9 percent in Canada, 5.4
percent in Greece, 5.7 percent in Singapore and 13.3 percent in Spain. In April, industrial production also fell in India and China.
Shrinking industry around the world shrinks demand for energy in general - and for oil in particular. When the price of
anything gets unbearably high, it discourages demand. The resulting drop in sales, in turn, causes inventories to pile up
and the price to come down. That has proven true of overpriced houses - and it will likewise prove true of overpriced
oil.

Oil prices are at a 6 week low right now.
BBC News 7-22-08
[“Oil prices fall to six-week low,” http://news.bbc.co.uk/2/hi/business/7520670.stm]

Oil prices have fallen to a six-week low as US energy demand fell and a hurricane in the Gulf of Mexico appeared to be missing oil facilities.
US light sweet crude fell as low as $125.63 a barrel, well off its 11 July peak above $147 a barrel. Petrol consumption in the US is 2.2% below
last year's levels, according to a MasterCard survey, suggesting that higher prices are hitting demand.

Zarefsky Juniors 2008 104

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

[NEG] Prices Falling 105

Oil prices are falling now.
United Press International 7-18-08
[“Crude oil prices fall again Friday,” http://www.upi.com/Business_News/2008/07/18/Crude_oil_prices_fall_again_Friday/UPI-81531216383655/]

NEW YORK, July 18 (UPI) -- Crude oil prices fell Friday in New York, marking a fourth straight day in declining prices
for the bellwether commodity. Oil prices settled at $128.82 per barrel on the New York Mercantile Exchange, down more
than $2 on the day and nearly $20 below its record price set a week ago. The price of heating oil rose 0.0085 cents in late trading to
$3.70 per gallon. Reformulated blendstock gasoline prices fell 0.0014 cents to $3.1695 per gallon. Natural gas prices rose 0.11 cents to $10.68
per million British thermal units. At the pump, the national average price for a gallon of unleaded gasoline fell 0.009 cents to $4.105 per
gallon, AAA said.

Continued price increases force oil price to inevitably decrease.
The Telegraph 7-14-08
[“Oil price will fall back to $93, Lehman predicts,” http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/07/15/cnoil115.xml]

Crude oil will unwind much of its meteoric rise next year, investment bank Lehman Bros has predicted, as the Opec oil
producers raise their supply and the slowing global economy squeezes demand. The bank expects the price of crude
to fall back to about $93 a barrel. Oil, which hit a record high of $147 on Friday before falling back at the close. Yesterday, crude prices
in London were trading up 34 cents at $144.83. Soaring oil prices are increasing pressure on consumers and businesses in the US and the UK -
with US oil import volumes now falling rapidly - down 19pc in the three months to end-May. Ed Morse, chief energy economist at Lehmans,
expects mounting signs of slowing demand, and an expected increase in supply to move oil prices lower to $130 in the third quarter of 2008,
before dropping down to $93 a barrel. However, Mr Morse insists he is not forecasting a “demand destruction” in line with the 1980s cycle.
Chinese import volumes have yet to show any signs of slowing, he said. Mr Morse expects demand growth to ease to 1.2pc in 2009, with a
drop in prices owing to an expected “supply response” from Opec and others. He sold a third of his stake for £16.75 a share in April for £25m
and reinvested £19m to subscribe to a heavily discounted £6 share rights issue. Wide difference among analysts about the risks and rewards tied
to Imperial’s operation in Siberia have resulted in valuations ranging from £9 to £17 a share. Mr Morse said: “Our forecast of lower
crude prices in the second half of 2008 and 2009 relies more on increased supply rather than a demand drop. “The recent
evidence of demand slowing sharply in the US surely strengthens the case for lower prices.”

Oil prices are falling, making the US economy more stable
Read 08 (Madlen, journalist for the Associated Press, Stocks turn mixed as Oil prices retreat, July 15)

Wall Street recouped its steep early losses and traded mixed Tuesday as oil dropped by more than $7 a barrel, giving
investors hope that lower energy prices could help revive the flagging economy. Fears of escalating instability in the financial
sector have kept the market trading erratically, however. The market opened sharply lower on investors' increasing uneasiness about the
ongoing mortgage criss. Sobering comments from Federal Reserve Chairman Ben Bernanke, who told Congress the U.S. economy is faced
with "numerous difficulties," took stocks down further. Bernanke's comments come only days after the Fed and the Treasury said they would
lend financial support to mortgage financiers Fannie Mae and Freddie Mac if necessary. Shares of Fannie and Freddie — which together hold
or back nearly half of all the nation's mortgages — tumbled again Tuesday. But as oil retreated from its near-record levels, bargain
hunters entered the market and the Dow Jones industrial average, down more than 200 points in early trading,
rebounded. If oil prices stabilize or retreat, consumers might feel more comfortable spending on discretionary items,
and in turn help the economy. A barrel of light, sweet crude dropped $7.30 at $137.88 on the New York Mercantile
Exchange as traders bet that the weak economy in the United States and elsewhere will take its toll on global
demand.

Zarefsky Juniors 2008 105

there is evidence that the Federal Reserve reacted more sensibly to energy prices in the 2000s. Output continued to grow relative to potential output after the shock. Zarefsky Juniors 2008 106 . Unlike the shocks of the 1970s.pdf] So what should we conclude? To begin with. One possible reason is that the shock was too small to affect the overall pace of economic growth. First. member of the Council of Economic Advisers during the Carter administration [“Who’s Afraid of a Big Bad Oil Shock?” September 2007. Furthermore. Oil-price shocks are neither so big nor as bad as in the 1970s. the impact of the shock on inflation was qualitatively similar although quantitatively different from the earlier shocks. and unemployment continued to fall.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Oil Shocks Gradual 106 Current oil shocks are more gradual and only one-third as large as that of the 70s.. on the Brookings Panel on Economic Activity. The reasons for the declining sensitivity are not completely understood. More recent experience lulled fears.All of these factors would tend to reduce the impact of energy-price shocks on the macroeconomy. The Economist 5-29-08 [“The oil shock: Pistol pointed at the heart. but GDP still expanded by nearly 2%. and workers may see oil-price increases as volatile and temporary movements rather than the earth-shaking changes of the 1970s. it was prompted mainly by rising demand in China and other emerging economies rather than by disruptions to supply. the shock was about one-third as large as the shocks of the 1970s. The economy has in any case become less vulnerable to oil shocks of any description because it is less oil-intensive than it was.econ. That was a substantial shock by any reckoning. member of the National Academy of Sciences. using half the oil per unit of GDP that it did in the 1970s. and the change was much less of a surprise in the context of past experience. until now the risk of a recurrence seemed almost as remote as that fated decade... businesses. and then grew at an above-trend rate of around 3% a year in 2006 and 2007. businesses.A second and more speculative reason for the muted macroeconomic reaction is that consumers. It occurred more gradually. . Current oil shocks are more gradual and the economy is more resilient. There were several reasons why the economy coped better with the oil shock of 2004-06. . For one thing. of Economics at Yale University.” http://www. Additionally. The rise in PCE inflation in the recent shock was consistent with less than full pass-through of the energy-price increase. yet the economy absorbed it without undue damage.. there appears to have been no substantial pass-through of the energy-price increases into wages or other prices. The impact of the shock on output was completely different from earlier episodes – indeed the sign was opposite. the real oil price in sterling doubled. The economy weathered an increase in real oil prices of 125 percent from 2002 to 2006 without any major strain. and workers. and containment of inflation as well as the instabilities caused by financial innovations and risk-taking. In the end. there is modest evidence that the transmission mechanism from energy prices to output has changed from negative to neutral over the last three decades. http://www. A cautious reading today suggests that policymakers should not be afraid of a Big Bad Oil Shock. William: Sterling Professor (the highest academic rank at Yale University. Output growth slowed in 2005.economist. this suggests that much of what we should fear from oil-price shocks is the fearful overreactions of the monetary authority.cfm?story_id=11455807] Despite these disturbing precedents. Roughly speaking. the shock was substantially smaller than the shocks of the 1970s. In terms of effects.com/world/britain/displaystory. the oil shock of 2002-2006 was different from those of earlier period. This suggests that policymakers should focus on fundamentals such as employment.. The most recent evidence suggests that the economy is robust in the face of major energy shocks. awarded to a tenured faculty member considered one of the best in his or her field). If we measure the shock as the income effect per year of the price increases. but two underlying causes seem plausible. The reason for the anomalous output impact is unclear.edu/~nordhaus/homepage/Big_Bad_Oil_Shock_Meeting. real output. the rise in oil prices in that period was smaller and more gradual than the spectacular jumps of the 1970s. according to the National Institute of Economic and Social Research.yale. Nordhaus 07. consumers. Between early 2004 and the spring of 2006.

Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] High Prices Don’t Affect Econ 107 High oil prices don’t affect the economy CCTV International 08 (“Oil prices not to have big impact on world economy in long term. and international trade has grown at a rate of between 7 to 9 percent. Although the price of crude oil has been rising consistently in recent years.com/program/bizchina/20080103/102837. and explore new energy resources to achieve sustainable development. but are not likely to have a big impact on the world economy in the long run. The main reason is energy-saving measures and new technology. It will force the economies to change their growth model.shtml) Analysts say the high oil prices will continue. Secondly. The economic growth is less reliant on high consumption of oil. http://www.cctv.” 1/3/2008. the demand for crude oil will increase by 35 percent to 116 million barrels per day and crude oil prices will remain high for the longer term. the world economy has maintained a growth rate of around 5 percent. Consumption has therefore remained strong. innovate energy-saving technologies. Zarefsky Juniors 2008 107 . Another reason is that the world economy is in a phase of expansion. the integration of global economies and technology innovation have raised production efficiency and reduced costs around the world. and macro-economic policies in many countries have been in place to withstand the impact of high oil prices. However. which has led to an increase in disposable incomes. which are improving the efficiency of energy consumption. the International Energy Agency has estimated that until 2030. Analysts say. the impact of oil prices on the world economy is weakening.

July 19 (UPI) -. Right now we have more than 700 million barrels of oil sitting underground in Texas and Louisiana that can be used in times of emergency. oil reserve should be used. Sen.” http://www." Murray also called for increased regulation of energy trading.Congressional Democrats want the United States to tap into the Strategic Petroleum Reserve to help bring down oil prices." Murray said." "With regard for nothing but their own profits. Zarefsky Juniors 2008 108 .S. Democrats. which she contends is being affected by speculators seeking to profit from rising oil prices.upi. "We believe it's time for the oil companies to use that land and to make sure that it stays in America instead of shipping it to the highest bidder overseas. it is time to use the emergency reserves and urge oil companies to drill on leased federal lands. she said. United Press International 7-19-08 [“Murray: U.S.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] SPR Solves Shocks 108 Strategic Petroleum Reserves solve shocks. Murray said during the Democrats' weekly radio address that with gasoline prices reaching new highs. Patty Murray said Saturday. "Democrats also think it is time to tap into the Strategic Petroleum Reserve. U. some traders are bidding up oil prices by buying huge quantities of oil just to resell at an even higher price.com/Top_News/2008/07/19/Murray_US_oil_reserve_should_be_used/UPI-65421216484535/] WASHINGTON. "believe we must rein in Wall Street and traders who are unfairly driving up oil prices." she said.

But the first 800 million barrels would help the U. R- Okla. One oil- exploration expert said if the right equipment were available. Hackett said it would take only two or three years. The remaining estimated 2 trillion barrels from shale would take longer because they would be more difficult to extricate.: founder of the Heritage Foundation. The second: Greedy oil companies have 86 million acres of leases provided by the federal government and they want more leases only to satisfy their greed. On the second point. Weyrich served as President of the Kreible Institute of the Free Congress Foundation.rep-am. maybe 30 years before we see a drop of oil coming from the aforementioned sites. and serves as a deacon in his church. so the consumer sees no benefits. Either way. who used to be in the oil business. in every news conference and in every speech addressing the high cost of gasoline. Jim Inhofe. one oil-shale expert said the first 800 million barrels of oil from shale could be available in two or three years. The first is: It will take at least 10. Weyrich is Chairman and CEO of the Free Congress Research and Education Foundation. Weyrich 7-19-08. providing 800 million barrels within two years and eventually 2 trillion barrels. the public has changed from supporters of environmentalism to advocates of drilling for oil and natural gas in the Alaskan National Wildlife Refuge and offshore. Mr. Hackett. It accepts the lease money and the annual rents but has refused to grant permission to drill. liberals have come up with two mantras which we hear on every talk show. Weyrich has been named by Regardie's Magazine as "one of the 100 most powerful Washingtonians. so companies have explored them and found they would produce little.” http://www." Mr.com/articles/2008/07/19/opinion/syndicated_columnists/354468. Sen. A sought-after writer.” http://www. For the first time since the 1970s. Weyrich has published policy reports and journals on a variety of conservative issues and has contributed editorials to The New York Times. depending upon where the drilling took place. it might take only a year because the oil companies know exactly where the oil is in the Outer Continental Shelf. He said the government only permits exploration on those leased lands. Newsmax 08 [“Paul Weyrich Biography. The Washington Post. and The Wall Street Journal.1983 by readers of Conservative Digest as one of the top three "most popular conservatives in America not in Congress. liberals in both parties have found themselves responding to significant demands for drilling. to accuse oil companies of greed is an unfounded assertion. He served as President of the foundation from 1977 to 2002." He has been married since 1963 to the former Joyce Smigun. He is a founder and past director of the American Legislative Exchange Council. who said the federal government in effect is guilty of fraud.txt] In a remarkably short time. more qualifications below [“It's time to drill in ANWR. said the reason oil companies are not drilling on the 86 million acres is there is no substantial oil available on those lands to make drilling economically viable. On the first point. He implied some oil had been found that would be worthwhile to extract. A former reporter and radio news director. president and CEO of Anadarko Petroleum Co. I received two different answers. and the current National Chairman of Coalitions for America. Speaking with House members who support more drilling. responsible for training democracy movements in the states comprising the Former Soviet Empire. Weyrich is a regular guest on daily radio and television talk shows. Larry Kudlow recently featured on his CNBC show James T. He has been described by The Economist as "one of the conservative movement's more vigorous thinkers. Paul M. Zarefsky Juniors 2008 109 . Toward that end. Prefer our evidence – Weyrich is awesome. From 1989 to 1996. Mr. economy. Liberal complaints are wrong. is the father of five children..newsmax. the founding president of the Heritage Foundation. but companies cannot drill. The second answer came from Hackett.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] ANWR Solves Shocks 109 ANWR would satisfy the oil demand. Their responses are meant to confuse the electorate to turn public opinion back to their position on the environment.S." Voted three years in a row from 1981 . Mr.com/weyrich/bio/] Paul M. for wells to begin producing oil.

That’s just where the riddles begin. unfortunately. why isn’t their development further along? Why do we seem to be caught flatfooted by this crisis? If we do expand drilling operations here in the good old USA.7 trillion cubic feet of natural gas a day." Zarefsky Juniors 2008 110 . A postage stamp lying on a football field. there’s no guarantee oil prices would immediately drop. we should at least consider drilling in the Alaskan refuge. Either way. and the cynic within me wonders if this is all some gambit by the industry to fuel consumer outrage until voters INSIST companies are allowed to drill in regions they’ve long coveted. Something that will produce fuel. the same folks who claim indignation at any whisper of new drilling are not offering any practical solutions of their own. There are. She also had to put up a $300 deposit this year. solar power.dll/article?AID=/20080707/NEWS/80707037/-1/OPINION] Let’s be honest -. so they say. If the GOP and their Big Oil benefactors want to tap into the Alaskan refuge also known as ANWR (that’s pronounced AN-war. Obviously. but they HAVE NO ANSWERS. I’m talking Boston Tea Party-type action (although we obviously don’t want to dump oil in our own harbor. the rest of us are being squeezed in the middle. geothermal technology. The reason Democrats are having to fight off rising popular support for opening up ANWR to drilling — and the reason Republicans once again find themselves the scourge of people who want to protect the planet — is because neither side had the foresight to aggressively pursue these other power sources long ago. how soon will we see results at the gas pump? And is it just a coincidence that this debate to lift drilling bans has reopened just as Bush and Cheney — both Oil Guys — are getting ready to leave office? In the meantime. Likewise. Nuclear energy. these measures will only serve as a stopgap while we bring along other energy options that should’ve already been on line by now -. this year the amount has increased to $399.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] A2: ANWR Not Cheaper 110 Even if ANWR doesn’t reduce prices. It makes no sense. then they have to come up with a viable. They rail against Big Oil mega-profits and price gouging. Even if such drilling were to occur. while the Left and the Right argue over their cause.” http://www. but first they have to provide a convincing argument for not drilling in these areas that have already been leased to them. I’ll tell you something — I’m feeling pretty pissed off and powerless these days.or at least a little further along. appropriately. I’ll settle for holding ANWR hostage. but they don’t seem that much closer to realization. shale oil.S. if the Democrats and granolas want to protect ANWR.S.would it really be that bad to start drilling for oil in one small section of the Arctic National Wildlife Refuge? I mean. After decades of promised exploration of alternative energy sources. but maybe they see an opportunity to capitalize on it — kind of like when the local school district threatens to cut its math program if it doesn’t get a significant budget increase. practical alternative. I don’t like feeling powerless." Alaska Gov.com/apps/pbcs. electric hybrid cars. Seacoast Online 7-7-08 [“Drilling in ANWR may be the answer. biofuels. Not to say they’ve created the crisis. I still haven’t heard a legitimate reason why Big Oil hasn’t explored these leased options. And with everyone pointing the finger at everyone else. They say these regions could produce nearly 5 million oil barrels and 44. House of Representatives kill a bill that would have required oil companies to drill in those areas before considering others. "I don’t think it’s overly dramatic to say that this nation’s future and the quality of life for every American are dependant on the decisions you make or don’t make in the next few months. If we have no alternative sites. and the wife spent 78 bucks just the other day to fill the tank of her Jeep. which wasn’t necessary last year. but it "should help reduce price volatility in the U. seriously? Yeah. Our friend Denise up in Rochester had to pay a price protection fee of only $45 for her oil service last year. My understanding is that the proposed area is about 2.) But rather than resort to any sort of violent protest. but isn’t to be confused with the stunning actress Gabrielle Anwar who so memorably tangoed with Al Pacino in "Scent of A Woman") then that’s fine. and the sooner the better. according to the Associated Press. wind — these are just some of the options we’ve heard discussed over recent decades. there’s plenty of blame to be spread on both sides of the aisle.000 acres of a 19-MILLION-acre area. more than enough questions. it STABILIZES PRICES. Palin’s letter urged Reid and other leading Democrats to pursue drilling in ANWR. Sarah Palin recently wrote to Senate Majority Leader Harry Reid. then yes. It’s getting to the point where I’m tempted to express my extreme frustration in a very public fashion. That’s a markup of almost 900 percent. But now is the time for action. But environmentalists and Democrats insist oil companies already own permits for drilling in up to 60 million acres they haven’t even tapped into yet. Now is the time for leadership.seacoastonline. which is the internal link to your advantage. it’s hard for us in the general population to figure who’s telling the truth. At my house we’re going to have to pay $459 a month this year for heating oil if we want to keep the price down. The problem is. to cover the company’s loss in case the price dipped below the fixed rate. So then why did Republicans in the U. she noted. I know we’re not supposed to rape the environment for our own selfish indulgences.

IHT 6-30-08. International Herald Tribune [“Inflation.php] We don't know how the Fed is going to get out of this bind. In the long run.but there must be help for the most hard-hit Americans. Policymakers must come up with strategies to prevent the recession-and-inflation problem from happening time and again. From this perspective. Zarefsky Juniors 2008 111 .com/articles/2008/06/30/opinion/edoil. Foremost would be a systematic plan for reducing America's dependence on oil. however. like lower-income workers.cutting use and spurring the development of alternative energy . high oil prices are actually a good thing . oil dependence and the Fed's next step.iht. the bigger challenge is not the Fed's.” http://www.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Shocks  Alternative Energy 111 Shocks spur alternative energy development.

and life goes on. However. One viable answer is: nothing. economists expected U. Oil could be that second shock.Rising fuel prices that businesses and consumers took in stride earlier this year may now be near the point of pushing the weakened U.com/apps/news?pid=20601109&sid=a1aGJ64Na3g8&refer=home] Nov. in the 1970s the US economy was twice as oil-intensive as it had been when the occupation of Iraq started in 2003.15 From a global perspective.cfm?FuseAction=Minority. and a former Federal Reserve economist.Blogs&ContentRecord_id=2745262b- 802a-23ad-4bad-447fc2b77636] Washington. growth to slow to less than 2 percent in the fourth quarter -. Even before the latest jump in energy costs.S. recession next year.C.half the third quarter's pace.org/page_7028. – U. We got one shock in the form of the credit crunch. January 08 Professor of Political Science at the University of Illinois [“Oil and Security. U. If oil is viewed not as a strategic commodity but rather just another commodity. Senate Committee on Environment and Public Works 7-15-08 [“McConnell: It’s Time for a Serious.S. subprime-mortgage collapse contaminated their credit markets.S. economy into recession.21 There was no guarantee that monetary policy would continue to be exercised in a way that would avoid recession. Andrew Cates. chief economist at Global Insight Inc. Europe and Japan are vulnerable as well. an economist at UBS AG in London. After all.19 In 2007 an oil price spike coincided with exposure of overreach in the subprime mortgage market. such price fluctuations do nothing except move money around.S.senate. ``It would take two shocks to bring the economy to its knees.18 The subsequent economic malaise of the early 1980s was further compounded by problems resulting from inadequate regulation of US savings and loan institutions. Barsky and Kilian attribute the US stagflations of 1973-1975 and 1979-1982 primarily to a response to money supply overexpansion.” http://epw.bloomberg. 12 (Bloomberg) -.S. http://www.S.S.html] Nevertheless. Bloomberg 07 [“$100 Oil May Mean Recession as U. Zarefsky Juniors 2008 112 . then there is nothing special about it.'' Crude-oil prices are poised to cross the $100-a-barrel mark while the U. A single barrel of crude oil costs almost three times today what it did a year and a half ago.” November 12. economy is still reeling from a surge in corporate borrowing costs.gov/public/index.17 Only when they trigger or coincide with other financial instabilities do such fluctuations cause or appear to cause global economic problems. ``We are in a danger zone.16 Oil price fluctuations themselves thus do not cause global economic recession. there is little doubt that concerns about who had control of Iraq’s large oil revenue potential brought particular attention to that price increases in 1998 and 2007. after the U.'' Oil prices can’t collapse the U.policypointers. D.” published by the Stanley Foundation. Economy Hits `Danger Zone'.5 percent in the final quarter of 2007 there remained ample room for doing so. economy. with oil price shocks only accounting for part of the accompanying recessions. multiple scenarios prove Clifford Singer.. prices for many raw materials fluctuate substantially.S.'' says Nariman Behravesh.e. for reasons discussed below. […] While outside intervention in Mideast conflicts has not been effective in stabilizing oil prices. said his models suggest a 45 percent chance of a U. windfall profits from oil- producing and exporting countries inevitably find their way into investments in oil-receiving or importing countries. as oil prices prove a ``growing concern. the question of what to do about oil price instability remains. Senate Republican Leader Mitch McConnell delivered the following remarks on the Senate floor Tuesday regarding the need for a serious and balanced approach to lowering the price at the pump: “As we stand here. but with the target for federal funds rates still at 4. up from 33 percent last month.20 and in 2007 the Federal Reserve responded to the downturn in the housing market with a measured reduction of interest rates in a much less difficult monetary policy environment than it had faced during the stagflations in the previous effective oil cartel period. http://www. This is a crisis that demands our full attention. Empirically denied – we’re already in the midst of a shock. The foreign exchange that flows to oil producers has at some point to be reinvested or used for purchases that stimulate the economies in countries from which the purchases are made—i. no dire effects on the US or global economy have yet been observed or are clearly in the offing.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Empirically Denied 112 Empirically denied – a recession was predicted when oil prices hit $100. Balanced Approach to the Price of Gas. Americans are suffering from the most dramatic oil shock in memory.S.

and Mr Paulson continues to be more worried about growth than inflation. however. The surge in the euro against the dollar has helped protect the eurozone.html] The US Treasury Secretary. Yet another big change since the 1970s is that central banks have grown up. Sean: Economics Editor of The Independent. including oil. They know they must act speedily to nip inflation in the bud. For all its credit- crunch problems. but supply is forecast to come in at 85. interest rates are guaranteed to go up if higher commodity prices begin to feed into consumer prices. also partly helps to explain the rise in its price. is now forecasting $150 a barrel. Heath 12-8-07. in which oil is priced. Another crucial difference is that Western economies are far more reliant on services than they ever were in the past. Sterling's performance against the greenback has also helped. Despite oil prices. Zarefsky Juniors 2008 113 . O’Grady 7-4-08. effectively guaranteeing that $100 a barrel will be the new norm. we have good productivity.7 million in 2008.com/p/articles/mi_qa3724/is_20071208/ai_n21153240] Demand will continue to grow faster than supply next year. which is one reason why overall inflation has been almost entirely unaffected by the surge in the price of fuel over the past few years.4 million barrels per day in 2008. Finally. All of which confirms that the rising price of oil is a result of economic success. Nobody's laughing today. As the price of a barrel of oil tested fresh highs once again. gains as much as it loses from higher oil prices.2 million barrels per day in 2007 -. Mr Paulson nonetheless said: "We have a resilient economy. this means they are less affected by the prices of commodities. Producers have seen the value of their exports drop in real terms as the greenback has plummeted. Allister: associate editor of The Spectator and deputy editor of the Business [“Braced for a new oil shock? Relax. it’s predictive and assumes their warrants. the British economy.uk/news/business/news/paulson-predicts-us-economy-will-pick-up-by- end-of-the-year-860062. rather than the cause of economic failure. cancelling out much of the rise in the price of oil. The slump in the value of the dollar. a prominent British newspaper [“Paulson predicts US economy will pick up by end of the year. where lower taxes mean that market prices are reflected much more closely at the filling stations. So what next? Jim Rogers.co. we will have stronger growth at the end of the year than we have right now. http://www. which still pumps out roughly as much oil as it consumes. the investor who predicted the start of the commodities rally in 1999. as it was 30 years ago in the West.” http://findarticles. we have good efficiency. there has been huge pressure to jack up prices in compensation. The gap widens to 2. he was dismissed out of hand. in many countries including Britain.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Economy Resilient 113 We can survive any oil shocks: multiple reasons. the world economy enters 2008 in not too sickly a state. this isn't the 1970s.000 barrels. When he first came up with his prediction a year ago. But one thing is clear: unlike in the 1970s.9 million barrels per day this year to 87.a shortfall of 700." That. by contrast. sky-high petrol taxes act as a cushion: the price at the pumps has gone up proportionately much less than it has in America. The International Energy Agency expects global demand to rise from an estimated 85. Henry Paulson.independent. I think there's a very strong possibility that we will be growing at the end of the year.” The Independent. especially in Asia. it was so weak in the 1970s that it did not take much of a shock to cripple it. the world economy will be able to cope with almost anything the oil market throws at it. and acknowledging the "headwinds" to growth coming from rapidly rising global energy and food inflation. signalled yesterday that the worst may soon be over for the American economy. could still be relatively weak. In the aggregate. the economy is resilient – prefer our evidence.

This is because the producing economy of people who work for a living simply can no longer generate enough purchasing power for people either to pay their debts or allow them to purchase what is being sold in the marketplace. Treasury Department. recipient of the Cavallo Foundation Award for Moral Courage in Business and Government. a healthy banking system is vital to the economy. economy.” the result of a 200-year-old financial system where money is largely created by bank lending and where since 1980 our industry and jobs have been increasingly outsourced abroad to cheap labor markets. Trumbell 7-16-08. There are numerous alt causes to a U.ca/index. and dumb as to the causes. gas and food price inflation. is that the producing economy of working men and women is being crushed by the overall debt burden on households. economic decline. The dollar fell to a new low against the euro. pensions eroded. deaf. The only places a more-or-less normal life may still be possible will be the wealthiest imperial centers like Washington. "It's that uncertainty. Thus the collapse of the financial economy has started to destroy the producing economy as well. Cook 7-16-08. he said. as the debts it is based on cannot be repaid.S. the victims within the middle and working classes are seeing their livelihoods ruined. but economists say it's a real possibility. In turn it is the debt burden and the loss of societal purchasing power that are crashing the stock market. homes foreclosed on. and are being saddled with ever-increasing debt and forced to work under more and more stress due to rising burdens of taxation. economy.php?context=va&aid=9596] With the economic news of the week of July 14—the continuing crisis among mortgage lenders.csmonitor.: federal government analyst for the U. is bankrupt. frequent contributor to Center for Research on Globalization [“Status Report on the Collapse of the U. the onset of bank failures. and governments that could reach $70 trillion by 2010. something it hasn't done since 1922. businesses. from auto manufacturing to the value of the dollar. and now an economic slowdown and a plunge in bank stocks have raised the prospect of more bank failures and the need for federal intervention. jobs taken away. I think. Zarefsky Juniors 2008 114 . is how long housing-market declines will persist. especially as problems at American banks deepen amid a continuing shakeout of the housing crisis.globalresearch. New York.com/2008/0716/p01s05-usec.S. A severe recession in the United States still isn't the mainstream forecast. Economy. The financial system. talked a lot about unknowns even as he sought to reassure lawmakers Tuesday at a congressional hearing. It’s band-aids on band-aids. Richard C. Even the super-rich are becoming nervous as cries for an emergency suspension of short selling ring out.S.000—we are seeing the ongoing collapse of the U. that is generating a lot of the stress … that we're seeing. however. One major question.S. Crucially. the announced downsizing of General Motors. the slide of the Dow-Jones below 11.S. Thus domestic incomes have stagnated while the nation’s GDP has not been able to keep up with the exponential growth of debt. and bureaucratic rules and regulations.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Alt Causes 114 U. the closest thing to a spokesman for the economy. frequent contributer to the Washington Post. While the mainstream media are blind.S. Chicago. including mortgage giants Fannie Mae and Freddie Mac.html] Expectations that the current US economic downturn will be shallow are diminishing.S. No new wealth is being created. or San Francisco. Everyone from CEOs to policymakers to ordinary investors and depositors are grappling with the question: How bad is this crisis? How bad could it get? It's a sign of the times that Federal Reserve Chairman Ben Bernanke." he said in response to questioning. General Motors canceled dividends for shareholders.” Christian Science Monitor. Civil Service Commission and the U. All that the current bailouts being engineered by the Federal Reserve are doing is to create more debt to shore up failing financial institutions. Stocks fell worldwide. What is really taking place. http://www. Mark: Staff writer of The Christian Science Monitor [“Woes deepen for U. The rising uncertainty and risk were visible Tuesday. economic decline is fueled by many alternate causalities. It’s a “perfect storm. What makes forecasts challenging these days is that the economy's problems involve the linkage of many moving parts.” http://www. Houston.

” http://afp.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Alt Causes 115 Many non-oil related alt causes. and some other commodities. "The balance is again tipping towards fears of recession given that the (Bernanke) speech .in the United States. food. The Fed report lifted its 2008 outlook for the US economy in a forecast that appears to show no recession." Bernanke had warned on Tuesday. a softening labor market." said Valerie Plagnol. and rising prices of oil. Agence France Presse: the oldest news agency in the world. But investors across the globe remain on edge over the possibility of a recession -.google... analysts said. including ongoing strains in financial markets. the joint head of strategy at Credit Mutuel CIC in Paris. Zarefsky Juniors 2008 115 . AFP 7-16-08. and one of the three largest with Associated Press and Reuters [“Global stocks shake with stress from US financial crisis.com/article/ALeqM5gKWr3a7zyRm3jOea_vtAUbgTMoJw] "The economy continues to face numerous difficulties.two or more quarters of negative economic growth -. declining house prices. confirmed the particularly marked uncertainty weighing on the economy and persistent uncertainty about inflation.

U. Securities and Exchange Commission 08 [“Circuit Breakers and Other Market Volatility Procedures. The formulas for these thresholds are set forth in the New York Stock Exchange (NYSE) Rule 80B.sec. and 30%—set by the markets at point levels that are calculated at the beginning of each quarter.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Circuit Breakers Solve 116 Market circuit breakers are designed to curb inflation and economic decline. Level Two (20%) circuit breaker set at 2. cross-market trading halts during a severe market decline as measured by a single day decrease in the Dow Jones Industrial Average (DJIA). 20%. 2007. and the Level Three (30%) circuit breaker set at 3. For example. There are three circuit breaker thresholds—10%. on April 1.450 points.700 points.htm] The securities and futures markets have circuit breakers that provide for brief.S.gov/answers/circuit. Zarefsky Juniors 2008 116 . coordinated.” http://www. the average value for the DJIA for the preceding month (March 2007) was used to calculate point levels (rounded to the nearest 50 points). This resulted in the Level One (10%) circuit breaker set at 1.250 points.

But rebates and interest rate cuts will be working their way into the economy by midyear. and is contributing to inflation. Economists say the Fed can temper inflation by reversing course and raising rates in the second half of the year. Pg. What can the Federal Reserve do to counter stagflation? It can't boost the economy and dampen inflation at the same time. I think the economy is going to pick up and we're going to see an improvement in inflation by the end of the year. Raymond James & Associates "It's the '-flation' part I'm a little more worried about than the 'stag. Meanwhile. Bernankesignaled yesterday that the central bank is turning its attention to fighting inflation after several months of cutting interest rates to bolster a weakened economy and struggling financial system. economic growth this year is projected to slow to 1. said Mark Zandi. BUSINESS. Most of the run-up in inflation is due to higher commodity prices. It will not get out of hand. director of the Institute for Economic Competitiveness. which has declined in value. 2/22/08 FLASHBACK TO THE '70S.cost more in the United States. Higher interest rates reduce borrowing and spending. The Boston Globe. And economists say the inflationary expectations of long-term investors are under control. Zandi said.com. They also note that wages are not rising and a wage-price spiral is considered a prerequisite for stagflation. it's still only 4. for example. as seen by low long-term rates in the bond markets. hopefully boosting consumer and business spending.including oil . F1. What does it mean to me? Consumers are getting squeezed at the gas pump and the grocery as wages stay flat while expenses rise. and I don't see that spilling over to other parts of the economy. 6/5/08 Copyright 2008 Globe Newspaper Company. and commodity prices. chief economist of Moody's Economy. Petersburg Times. Bernanke focused on the impact of soaring energy. Interest rate increases are coming down the road. Boston Globe.' Because in order to extricate inflation once it does take root. since the fed is keeping a check. KRIS HUNDLEY. Floridians have the added pressure of rising homeowners insurance and declining real estate values. 1D Are signs of stagflation emerging? Over the past 12 months." Zandi said. This renewed focus on inflation suggests the Fed won't cut interest rates when policy makers meet this month." Stagflation is no threat to the economy. the struggling economy appears too weak for the Fed to starting raising rates. and that's laying the groundwork for [rate] increases. All Rights Reserved. below earlier forecasts. there's not much Bernanke can do except talk. agricultural. What the experts say: "It's not anywhere close to when we had 10 percent unemployment along with 10 percent inflation. and talk tough about inflation." Sean Snaith." While Bernanke said a repeat of the '70s is unlikely. On Tuesday. But there's still a lot of uncertainty in the outlook.9 percent. Bernanke said the Fed is worried about the dollar. which slows demand and makes it harder for producers to raise prices. "Right now." Scott Brown. BUSINESS. it's low-altitude stagflation. Pg. when runaway inflation and stagnant economic growth gave rise to the term "stagflation. chief economist. "But he's changed his focus from the financial system and housing. For the time being. Petersburg Times (florida). St. University of Central Florida "If it's stagflation. however. Bernanke: Fed is intent on preventing stagflation'. St. What makes some economists think it's not? Though unemployment is creeping up. with another cut in the short-term interest rate expected next month. Robert Gavin Globe Staff Federal Reserve chairman Ben S. the pain is significant.3 percent. The Fed is now focused on spurring the economy. consumer prices have risen an average of 4. he said. Times Staff Writer. Speaking to graduating seniors at Harvard College's Class Day.3 to 2 percent." Zarefsky Juniors 2008 117 . I'd call it micro- stagflation. by the end of 2008 the economy will be picking up. compared to other currencies.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Inflation Uniqueness 117 Bernanke is shifting focuss to combat inflation. A weaker dollar means imported goods . the Harvard speech followed other recent speeches in which the Fed chairman addressed concerns about rising inflation. comparing today's situation to that of the 1970s. fueled by increases in oil and food prices. once it's got the economy going again.

Fed chief says Vigilance on easing rates as needed wins applause on Capitol Hill. The top U. that is to growth and to financial markets. U. But Bernanke stressed that he believes inflation will move lower as the year progresses and growth remains tepid. "Our current view is that inflation will moderate this year as oil and food prices don't rise as much this year as they did last year. isn't falling into stagflation.com/news/story/us-not-falling-stagflation-bernanke/story. stress in financial markets." Bernanke said. Bernanke's clear message is that he intends to cut benchmark interest rates further to support the flagging economy -. it's true that rising prices are complicating Fed policymakers' task of helping return the economy to a moderate growth path.aspx?guid=%7B8DC2219A-F7A7-497C-B58C-C481455AA68D%7D. I don't think we are anywhere near the situation that prevailed in the 1970s. "We have to make our policy trying to balance these different risks in a way that can get the best possible outcome for the American economy.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Inflation Uniqueness 118 US economy isn’t falling into stagflation Robb 08 (Greg. just as it was on Wednesday by the House Financial Services panel." Bernanke said. Zarefsky Juniors 2008 118 ." Bernanke said. and inflation pressures coming from these commodity prices abroad. At the same time." Bernanke said. Ugly inflation reports in January have raised concern that the Fed's recent interest-rate cuts will spark higher inflation in coming months just as the economy slows to a crawl.marketwatch. "We are facing a situation where we have simultaneously a slowdown in the economy. "At the moment.was well-received by members of the Senate Banking Committee. jouralist for the MarketWatch.S. He also said that inflation expectations have remained "pretty stable" despite the steady increase in oil and food prices. he said. central banker also said more plainly than he had that the sputtering economy presents more of a risk than the risk of higher inflation. I think the greater risks are to the downside." Bernanke said in his second day on Capitol Hill delivering the Fed's latest report on monetary policy. February 28) "I don't anticipate stagflation. http://www.S. See full story.

where she helped manage the central bank's foreign-exchange holdings. Bernanke 's comments are a shift from past remarks by Fed officials that have highlighted both the spur to exports from a cheaper dollar and the pressure it puts on import prices. the Fed is banking on a future with cooler prices and healthier growth. changing the inflation levels each time the rates go up or down. The dollar climbed after the speech indicated exchange rates will be a consideration in setting rates." said Sophia Drossos. a currency strategist at Morgan Stanley in New York who used to work at the New York Fed. The Gazette. The Fed's commitment to price stability and maximum employment "will be key factors ensuring that the dollar remains a strong and stable currency. SECTION: BUSINESS. In addition. BYLINE: SCOTT LANMAN." Dye explains that the European Central Bank is only charged with the responsibility of fighting inflation.com/igu-article-926-economic-trends-is-inflation-really-good-for-the-economy.html] The Fed keeps a tight rein on both inflation and deflation.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Fed Balance 119 The Fed balances inflation. Signals end of rate cuts. This pulls interest-seeking investors to Europe. We're now starting to plan for how a Fed rate-tightening cycle will unfold. as well as controlling inflation. B6 The Fed is working with the Treasury to "carefully monitor developments in foreign exchange markets" and is aware of the effect of the dollar's decline on inflation and price expectations.S.” http://www. It tends to be best to have a mixture of these two things at any given time in the Fed in order to set the best inflation policies for the United States. including precious crude oil. the Fed can keep a tight rein on the level of inflation. Chris: Associate of the Chartered Institute of Bankers.com/site/news. Bernanke said in his first speech on the economic outlook in two months. futures prices show. these low interest rates are a gamble. and the dollar falls in relation to the Euro and many other currencies. of course. "Yes. there are several policies in place to deal with inflation (or deflation as the case may be). After two straight quarters with inflation plus weak growth in gross domestic product (GDP). "The Fed is putting its marker down in letting the market know that a weaker dollar would be detrimental." Zarefsky Juniors 2008 119 .cfm?newsid=19834879&BRD=2231&PAG=461&dept_id=449419&rfi=6] Conventional economic wisdom states that low interest rates handed down by the Federal Reserve Board (Fed) are highly inflationary. We are below the inflation rate and therefore it's considered a zero rate." Bernanke said. Parry 08." Bernanke said.S. Bernanke shores up the U. the Fed can make decisions about whether or not to raise interest rates in an attempt to keep the market on a relatively stable level. Fed will balance Northeast Pennsylvania Business Journal 7-7-08 [“Running on empty. Policy makers as a whole tend to either tend to be more concerned with the growth of the GDP or more concerned with keeping the levels of inflation quite low within the country. One of their primary tools is the consumer price index. dollar. By examining the price of goods on a general level.investorguide. In view of the current low rates. Bloomberg News. Spain. "We will. "The Fed is watching the economy carefully.25 percentage points of cuts since September. Robert Dye. Issues warning on inflation. The Fed will make sure that inflation is controlled. some economists hold the Fed to be a key player in commodity inflation. They can't keep the interest rates at 2 percent forever. policy seems well positioned to promote moderate growth and price stability over time. . senior lecturer at University of Wales Institute. be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate. Bernanke spoke via satellite to the International Monetary Conference in Barcelona. 2008 Wednesday . Every six weeks. and has signaled there will be no more rate cuts. trying to create a happy medium that encourages moderate economic growth for the United States. As a result. June 4. Final Edition. "For now. he said.npbj. The end result is higher prices for imports into America. 6/4/08 The Gazette (Montreal). By changing the level of the interest rate in the United States. "We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations. senior economist with PNC Financial Services Group. The Fed watches a number of things carefully to help determine the inflation policies for the country. explains that today's Fed is walking an economic tightrope with a dual mandate of promoting economic growth. It has therefore kept interest rates high relative to the U. the Federal Reserve Board of the Open Market Operations Committee meets to set both the Fed funds rate and the discount rate. Cardiff [“Economic Trends: Is Inflation Really Good for the Economy?”http://www. Pg. interest rates are "well positioned" to promote growth and stable prices." says Dye." Investors anticipate the central bank will keep its benchmark rate at two per cent this month after 3. "I can't recall such a strong defence of the dollar from a Fed chairman.

2. 5. These have been securitized and are likely to trigger the next round of write-offs and loss reserves in the financial sector. He holds a B. and housing is only one of them. Going lower will not do much more to improve things.S. At least his colleague. The Wall Street Journal. The Fed can do nothing about the weather. Food price inflation is another form of shock. Mr. No bottom is in sight. Notice how silent the Senators and Representatives are about ethanol. CNBC. We see that in mutual fund flows and in the choices investors make in asset allocation. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania. 4. Wealth effects are harder to measure but are a real force in the economy. The Fed has done about all that it can to offset any negative wealth effects. There are still millions of housing units in excess inventory that have to be absorbed. and delinquency rates. The Fed knows that it is under political attack. 3." Now you hear nothing. Skeptics can look at the oil price in other currencies and see that it has also traced a parabolic curve. Those who allege the oil price is determined by the weakness of the dollar are ignoring history.7 trillion in the first quarter of 2008. It functions as a tax. just like other taxes. The result is that individual investors retrench. The total decline in US households net worth was $1. and so the US is transferring wealth to them. The amount of energy price inflation tax has already exceeded the total federal rebates. We know the story on corn and flooding. The foreclosures we see now are a result of policy a year ago. We have written several times about Senator Christopher Dodd's behavior with respect to Fed appointments. Energy price taxes. The oil price depends on many factors. The lead time between monetary policy and impact on housing is nearly a year. The Fed can also do nothing about the stupid Congressional structure that has subsidized ethanol and caused higher food prices that now have a "pile-on" effect on the weather-induced food price problem. 7/21/08 The Huffington Post. and Bloomberg TV. Like energy. Monetary policy is not designed to handle these natural forms of shocks. The year-over-year drop was nearly $900 billion. Mr. The housing negative wealth effect is becoming a record drop. Remember all the crowing about "energy independence. The Fed cannot control any of this economic transfer. We see that the stock market "labors" even as the Fed has lowered the policy interest rate to 2% and has extended massive liquidity to the banking and capital markets through the use of the many new tools and the redeployment of the Federal Reserve's balance sheet. There have been just as many periods when oil prices rose and the dollar was strong as there have been in the reverse. Homeowners' equity dropped about $400 billion in the first quarter of this year. The Fed knows this. How many journalists have probed the votes of those who gave us this policy? How many now editorialize against it? How many admitted that this massive subsidy at the federal level has been an enormous raid on the taxpayer and has diverted national resources to economically nonviable businesses? The Fed is powerless to do anything about this situation. Kotok currently serves as a Director and Program Chairman of the Global Interdependence Center (GIC). Now the Fed knows it must hold the short-term rate steady so that this situation can start to plateau. The Economist recently editorialized a view exactly consistent with ours. the National Association for Business Economics (NABE). Raising rates now only makes the housing situation worsen. Dodd isn't even embarrassed by the revelation that he took a personal mortgage at a below-market rate from Countrywide under their "VIP" program. The United States national legislature has dealt a terrible blow to Americans and the world with its policy. His articles and financial market comments have appeared in The New York Times. and other publications. admitted the error and contributed the difference to a charity and refinanced his mortgage. The Fed is in its weakest political position since 1932. default. Soybeans are also impacted. We have two at work. reduce economic activity and slow the economy. 1. This is the largest quarterly decline in the post-WWII history. Rising interest rates would only worsen the present situation.com/david-kotok/why-the-fed-will-not-rais_b_107598.html.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Fed Won’t Raise Rates 120 The Fed will not raise interest rates at all. It took the Fed 6 months longer than needed to get the rate low enough so that resetting mortgages reached levels that did not raise the foreclosure. the Philadelphia Council for Business Economics (PCBE) and the Philadelphia Financial Economists Group (PFEG). The direction of causality between oil and currency is not proven. David R. in Economics from The Wharton School of the University of Pennsylvania. Senator Conrad. The Fed has already dropped the reference rates to the level that will blunt the damage. It only exacerbates it by raising interest rates. as prices of housing continue to fall throughout the country. and a Masters in Philosophy from the University of Pennsylvania. The Fed will only exacerbate this situation by raising rates. nor can it alter the natural progression of a wheat disease. The other is the negative psychological effect that impacts individuals when they see the declining values in their retirement plans (401k). Food prices force substitution just like energy prices. They are deflationary. Barron's. And we have already written about the new airborne fungus impacting wheat. Kotok has served as a Commissioner of the Delaware River Port Authority (DRPA) and on the Treasury. He is a member of the National Business Economics Issues Council (NBEIC). Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. and the Board of Governors' [ CARD CONTINUES ON NEXT PAGE – NO TEXT DELETED ] Zarefsky Juniors 2008 120 . Kotok.huffingtonpost. In this case the tax collectors (recipients) are foreign governments. an M. Raising rates will certainly exacerbate this situation. This is the "flip side" of a rising stock market. He has appeared on CNN. and monetary policy is not one of them. Energy price inflation is a shock. Falling housing prices are now raising the default and loss rates on the $600 billion home equity second mortgage sector. Dodd has done nothing but deny he took a subsidy. http://www. We have seen drought- induced rice shortages and higher rice prices. and claims he didn't know about it. It causes substitution wherein consumers spend on gasoline or other energy at the expense of spending on something else. not inflationary. The energy price shock is not something that the Fed can control. The housing situation is worsening. the higher food prices are altering the consumer's ability to spend elsewhere.S.

Our position is that the Federal funds rate will be unchanged for the rest of this year. No one knows what the new normal will be. The situation is not healed and the Fed knows it. We expect that the Fed will stay on hold until after the election and keep its profile low in September and October. But the other forces at work are such that anything can happen. We will stop here because of time. That is why the Fed is unlikely to raise rates in 2008. The Fed knows it. Before the Fed can resume a more normal policymaking stance it must have restored financial markets to a healthier condition. Zarefsky Juniors 2008 121 . The Fed normally does not raise interest rates preceding a national election.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Fed Won’t Raise Rates 121 [ CARD CONTINUES FROM PREVIOUS PAGE – NO TEXT DELETED ] appointments are the most impacted since the Depression era. We also expect the Fed to continue the use of its balance sheet in these newer forms as it tries to narrow credit spreads and restore dysfunctional financial markets to more normalcy. Politics has injected a wild card into the Fed decision making. This time they are a beleaguered body and threatened by politics unlike in any recent period of history. The Fed cannot apply policy to an injured financial system.

Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Inflation Good 122 Inflation is good and allows a rebalancing of the economy – Fed says. If the Fed cuts interest rates further to give the economy a boost. while inflation is rising. Donald L. concerns over downturn. speaking here at a conference sponsored by the Boston Federal Reserve Bank. vice chairman of the Federal Reserve System.” http://www. Zarefsky Juniors 2008 122 . Boston Globe 6-12-08 [“Trying to balance inflation. "Setting policy in a manner that balances the undesirable effects of a shock to the system on both inflation and employment will tend to be more efficient than setting policy so as to deliver more extreme outcomes in either inflation or employment." Kohn said.boston.com/business/articles/2008/06/12/trying_to_balance_inflation_concerns_over_downturn/] HARWICH . If it raises rates to stamp out inflation. said yesterday." Kohn's remarks. perhaps in recession. The economy is weak. Kohn. said that moving quickly to bring down inflation in the face of oil and commodity price shocks could produce a sharp increase in unemployment. it risks sparking rapid inflation. Kohn noted that recent history shows big jumps in oil prices have had only "modest effects" on long-term inflation. it risks a deeper economic downturn.Allowing inflation and unemployment to rise in the short-term would be an "appropriate" response by policy makers to soaring oil prices. reflect the tricky situation faced by the Fed. Kohn. made during a panel discussion with central bankers from other countries. "It may be efficient to allow some adjustment period in which both overall inflation exceeds its desired low level and the unemployment rate is higher than its long-run sustainable level.

and oil prices always collapse in recessions.org/pub_display. New York Post. so many of us prefer to exclude only energy prices — and look at the "ex-energy" CPI. Zarefsky Juniors 2008 123 . The headline CPI includes everything. Alan Reynolds. Today. found on Cato Bottom line: "Headline CPI" gives us a fair picture of what has happened to the cost of living over the past month or year. with volatile food and energy prices factored out. It was up 9. inflation won't be our problem — because that would trigger a nasty global recession. and by 11. That's why analysts regularly look at "core CPI" — the headline number.cato. The ex-energy CPI excludes only direct energy costs. 7/18/08 http://www. The only way the headline rate could remain as high as 5 percent over the next 12 months would be for the price of crude oil to double again. such as gasoline and utility bills.php?pub_id=9545. "headline inflation" is much higher than the ex-energy rate because the price of crude oil doubled over the past year. Nor were the terrible inflations of 1973-75 and 1978-82 "caused" by oil prices.1 percent in the 12 months ending in December 1978 and 11. But it's near-useless for telling us where inflation is headed in the future. as many believe. But if crude doubles again.2 percent in the 12 months ending in December 1973.7 percent a year later. The graph above compares year-to-year percentage changes in two measures of inflation since 1966.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand [NEG] Inflation NOT a concern 123 Inflation is NOT a threat we should be concerned about. And either measure makes it quite clear that comparing today's inflation with a '70s-style stagflation is preposterous. Inflation then was skyrocketing even as measured by the ex-energy CPI: It was up by 8. But excluding food prices makes little difference except to distract attention from the main issue.1 percent a year later.

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

[NEG] Alt Causes 124

The current inflation is actually being caused by foreign demand.
The Huffington Post, 7/22/08
http://www.huffingtonpost.com/hale-stewart/#blogger_bio, Hale Stewart, Hale "Bonddad" Stewart is a former bond broker with several regional firms. He has been involved with the
financial markets since 1995. He currently practices law in Houston, Texas and is a graduate student in taxation at Thomas Jefferson Law School, working towards an LLM in
international and domestic (US) taxation.
As the information below indicates, inflation is a problem. And it is growing. I've written this title a bunch over the last few months,
largely in response to a story of a few commodities hitting new highs. However, I haven't looked at a ton of charts and compiled them into a
master list. So here is that list. First I went to Futures Trading Charts. Then I looked at their futures charts for agricultural and energy
commodities. I found 18 charts that show major price moves. All of them are listed below.
If this were one commodity I would dismiss it as a commodity specific price disruption. However, we're looking at
major league price spikes across the spectrum of goods. That's a huge deal and it indicates a fundamental
development in the markets. I stand by my standard explanation 101: with India's and China's standard of living
going up, it's only natural the demand curve gets moved to the right. That means increasing prices.

Zarefsky Juniors 2008 124

Shock/Inflation Adv Northwestern
Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand

[NEG] Consumer Turn 125

Inflation is causing consumers to spend more.
US News 5-1-08
[“Inflated Consumer Spending,” http://www.usnews.com/articles/business/economy/2008/05/01/inflated-consumer-spending.html]

Consumers spent more in March, but they did not have much of a choice. The Commerce Department reported today
that inflation was the main driver of consumer spending that month. Spending was up 0.4 percent, but if you exclude
inflation, that number falls to 0.1 percent. While higher prices are forcing consumers to spend more, real disposable income
was slightly negative in March, decreasing by less than 0.1 percent after increasing 0.3 percent in February.
Americans also have to worry about slow growth and unemployment. The unemployment rate for April will be
announced tomorrow, but one data point doesn't look good: New jobless benefit claims increased last week by
35,000.

Consumer spending is the only thing that keeps our economy going.
Business and Media 11-28-07
[“Talking Ourselves into Recession,” http://www.businessandmedia.org/printer/2007/20071128154245.aspx]

Journalists worried before Thanksgiving about holiday shopping. And they kept worrying as sales figures came in.
“Consumer spending accounts for more than two-thirds of the U.S. economy's growth. And if consumers really start
to pull back, that is what will turn us from the r-word of resilience to the r-word of recession,” Erin Burnett of CNBC told
Brian Williams on the “NBC Nightly News” November 26.

Zarefsky Juniors 2008 125

Shock/Inflation Adv Northwestern
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[NEG] Energy Dependence Untrue 126

Energy dependence is a joke.
Auerswald 07, Phillip E.: assistant professor and director of the Center for Science and Technology Policy at the School of Public Policy, George
Mason University; research associate at the Belfer Center for Science and International Affairs at Harvard University’s Kennedy School of
Government.
[“The Irrelevance of the Middle East,” The American Interest, Volume 2, Number 5, May - June 2007, http://www.the-american-interest.com/ai2/article.cfm?Id=269&MId=1]

Nearly everyone agrees, moreover, that thanks to policy, organizational and technological innovations, the oil-consuming
economies of developed countries are far more resilient in the face of short-term oil supply disruptions today than they
were thirty years ago. The strategic oil reserves of the OECD countries have grown to more than a billion barrels,
representing a significant short-term response capability. We also use energy inputs far more efficiently than we did thirty years
ago. And for all their negative lessons, Hurricanes Katrina and Rita demonstrated that the U.S. economy can adapt
quickly to infrastructure disruption. How many terrorist cells would it have taken to damage Gulf Coast production and refining
facilities as thoroughly as did those two storms? And even then, with the aggravating impact of the war in Iraq and speculative activity in the
oil markets, the observed macroeconomic impact has been negligible. In short, the persistent belief, distributed throughout American
politics, that U.S. energy dependence is a serious strategic and economic liability is simply not true. Straining to solve
a problem that really is not much of a problem at all is a waste of effort and a distraction from the policy goals on
which we ought to be focusing.

Zarefsky Juniors 2008 126

director of trade policy at the Cato Institute." Griswold says.com/money/16423346/detail. Instead. Chinese officials quickly issued a statement that "China doesn't want any undesirable phenomenon in the global financial order. treasuries. given Uncle Sam's overall $9 trillion debt.] Furthermore. This would have major political reverberations. to the extent that Chinese authorities do slow the American economy. economy usually have to sell at below-market value. But should China attempt to detonate this bomb.S." Zarefsky Juniors 2008 127 .S. so their overall value would not suffer. less capable of absorbing China's exports. last year. China wouldn't make any precipitous move to weaken the dollar because doing so would instantly lower the value of its own foreign reserves.” http://www. But the sellers would lose big time because they would effectively be giving away free money. For starters. This will crash the U. Chinese workers making. dollar.S. economy. its own economy would be buried under debris long before America even heard the explosion. given that America is China's biggest export market. when statements by a Chinese academic triggered rumors that a China dollar dump was imminent. The truth is that opening the U.10news. As the late Nobel prize-winning economist Milton Friedman explained. but no lasting impact. Channel 10 News 08 [“Olympic Diplomacy: Don't Fear China.S. In fact. especially now. making it useless as the world's reserve currency.S.S. economy. but that's to maximize the returns on its investments.html] That China is choosing to invest its reserves in this country ought to be viewed as a huge compliment. government debt is tantamount to putting a nuclear bomb in its hands: All that Beijing needs to do is dump U. bonds. the main source of America's status as the world's economic superpower. Indeed.S. China's $400 billion constitutes barely a day's trading in U. say. "Contrary to popular belief.S. A Chinese dollar sale would produce some economic ripples in the U. foreign governments that make distress sales of their dollar holdings to destabilize the U. a vote of confidence in the U. There would be plenty of buyers for these assets. observes Dan Griswold. to Chinese investments and exports has given China an enormous stake in America's economic health. the Chinese simply are not very big players. when it is already in a weakened state. [China has lately started diversifying its reserves into euros and other currencies as they strengthen against the dollar.S. they would make the U. China-bashers believe that allowing China to own U. toys for Wal-Mart (WMT) will not simply sit by quietly while their jobs vanish. Giving Away Free Money But even if it could.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Defense vs China Dollar Dump 127 China wouldn’t dump the dollar: multiple reasons. not out of political spite against the U.S.

Speaking before the National University of Singapore.3 billion in the first nine months of the year. In the meantime. About 70 per cent of its foreign reserves are generally believed to be held in US dollar-denominated paper.asp?wid=134&nid=6593 But.47 euro. . whilst China needed to diversify the composition of its reserve currencies. since it is “the largest currency that we use in terms of trade and foreign direct investment as well as financial clearances and settlements. . Additionally.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand China Won’t Dump 128 China won’t dump – the U. came to the defence of the US currency. the mainland's foreign currency reserves stood at US$ 1. the government in Beijing is starting to worry about the impact on the value of its reserves. The reason may be as simple as this: The dollar is still the world's dominant currency and all the major players.” Mr Wen said. China needs to continue its industrial expansion until it can move more of these rural dissidents into cities where they can find work other than hand-to-mouth farming (an ongoing program).. in set for a soft landing. China will not dump dollar—despite claims. rural Chinese who seemingly do not believe they are getting their "fair share" of the current prosperity and continue to present the threat of civil destabilization. Asia and China have a stake in making sure it does not decline too fast. Chinese Premier Wen Jiabao (in photo with Lee Kuan Yew. yes. China does not exist in a vacuum. at a fixed rate against the dollar. For Beijing exports are lifeline to prevent mass unemployment and social unrest. Singapore (AsiaNews) – As the value of the US dollars drops more and more.43 trillion by the end of September.com/Analysis/134/6593/high. amidst the exhortations to ruin that began this piece. “It is also a very firm policy [. former prime minister of the city-state) admitted that the matter is of concern to the government. “But now we can't help but be worried about how to preserve the value of our reserves. which have reached US$ 1. “When our foreign reserves were small. With the US dollar at 1. OPEC. we weren't under so much pressure. Zarefsky Juniors 2008 128 .asianews. Free Market News Network 06 [“CHINA DOLLAR DUMP? – TODAY'S HIGH ALERT. we are impelled to offer the perspective that it may not happen overnight (though. Yi Gang. principally US government bonds. combined with a weaker dollar would create problems for Chinese exports to the United States. it was very firm about keeping the US dollar as the main constituent. perhaps it could).it/index. an assistant governor of the People's Bank of China. terminally undermining the economy of one of China's major trading partners is not likely going to help bring about the continued prosperity China's leaders believe is necessary to "modernize" while maintaining the current. also to prevent a loss of competitiveness of Chinese exports. adding that financial markets are also wondering whether Beijing will buy stronger currencies in lieu of the US dollar.” he said. fairly unstable system. The leadership has its own problems - nearly half a billion impoverished. representing an increase of US$ 367.php?l=en&art=10848] Premier Wen Jiabao is open to diversifying China’s foreign currency reserves. A stronger yuan. the United States is a major consumer nation.” The United States are China’s main trading partner. of course.] that the US dollar is the main currency in our reserves.” 11/20/07.freemarketnews. and crippling such a large market without a replacement is not likely a positive move for producing nations such as China.” http://www. National People’s Congress Vice-Chairman Cheng Siwei suggested that China’s reserves should give more weight to stronger currencies in its reserves to offset the losses due to a weak dollar. http://www.4 trillion. but US dollar remains the basis. the EU and. or even Japan. Perhaps that is why the senior Chinese official above emphasizes the gradualism with which China intends to decrease its position in American dollars. He told a Washington-based public policy think-tank last week that. it still intends to keep the dollar as the main currency Asia News 07 [“Beijing worried about weak dollar eroding value of its reserves. Amid rising concerns that Beijing might reduce its US dollar holdings.” According to official statistics.S.

a senior fellow at the Peterson Institute for International Economics in Washington DC. Krissah: Named “Emerging Journalist of the Year” by the National Association of Black Journalists [“China steps up currency fight by 'absurd' threat to sell $US.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand China Won’t Dump 129 China won’t dump – it would hurt them. We have a broad. it would hurt its own pocketbook because it is such a large investor." said Menzie D Chinn.au/news/business/china-steps-up-currency-fight-by-absurd-threat-to- sell-us/2007/08/09/1186530532725. called Mr He's comments "frankly absurd". "And then another point I've made for some time is … what the Chinese hold in treasuries is less than one day's trading volume in treasuries.smh. said the Chinese researchers are probably attempting to remind Congress that "this is a relationship of mutual interdependence. "It's not really a credible threat. not a one-way street". who met Chinese leaders in Beijing last week and told them to raise the currency's value without delay." Nicholas Lardy.html] If China was to dump its US currency. http://www. professor of economics at the University of Wisconsin." The US Treasury Secretary. Williams 07.” Sydney Morning Herald.com. Zarefsky Juniors 2008 129 . "China's economic relationship with the United States is very important to both countries. Henry Paulson. "There would be turmoil in the financial markets. liquid market.

Cowen 12-2-07. people can always find reason to be unhappy. to Nov. We’re used to thinking it is a big advantage to stand at the top of a numerical list. but on the other hand a low dollar would mean bargains for foreigners. food stuffs and other products abroad at favorable prices. it is a common complaint that the euro is too strong and therefore it is too difficult for Europeans to export goods and services. This isn’t because of neglect or lack of interest. A weekend vacation or conference in nearby Toronto or Montreal may no longer feel like a bargain. The falling greenback is often seen as a sign of an impending recession or the fall of the United States from global leadership. where currency values have remained weaker against the dollar. There are still many bargains. In the eurozone. Extreme volatility can increase general anxiety and discourage economic commitments. for example. the dollar has dropped 19. Of course the lower value of the dollar also makes American exports more competitive. Tyler: Holbert C. but so far the low value of the dollar has proved more a benefit than a cost.2 trillion in dollar-denominated assets. The measure of a nation’s wealth is the goods and services it produces. In the case of the dollar. Dr. China is likely to slowly diversify into other currencies. Even after a serious real estate decline. 20 of this year. and our homes with those of our neighbors. a currency analyst at RGE Monitor. Wal-Mart serves a more working-class clientele and it is stocked with goods from Asia. Many observers have an exaggerated sensitivity to the dollar’s fall because they spend more time in relatively expensive countries. But when it comes to currencies. Today’s lower value for the dollar reflects the success of other regions. A falling dollar does mean price inflation in the United States. Still. these geopolitical developments are good for America even if the dollar becomes weaker in relative terms. not the relative standing of its currency. Harris Chair of economics as a professor at George Mason University. But from a broader perspective. A shopping trip to London will give an American tourist the feeling that all prices have doubled or even worse. who can afford it most easily. and that means a higher value for the Canadian dollar. but Chinese leaders have no interest in encouraging a run on the dollar or a fire sale of dollar-denominated assets. it would damage the reputation of the United States as a desirable place for foreigners to invest. thereby attracting investment and limiting the potential negative fallout from a dollar collapse.com/2007/12/02/business/02view. and most foreign suppliers have been reluctant to risk their position in the American market by raising prices a great deal. Another worry is that a falling dollar puts the United States at the mercy of China. and this is largely because of the strength of our export sector. used to judging ourselves against others — comparing our salaries with the earnings of our peers. so do French wines and German cars have a higher markup when they are sold in New York. the American economy is continuing to expand. Furthermore many price increases from Europe come on luxury goods and thus they fall on wealthy American buyers. even if they wanted to do so. but it is hardly a radical economic event. SO far the Federal Reserve and the Bush administration have shown little concern over the falling dollar. If the dollar went into a true free fall. The Canadian union appears increasingly stable.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Dollar Decline Not Bad 130 Dollar decline has benefited us more than it has hurt. when the dollar lost more ground than in the last few years. and the next decade was largely prosperous as well. and thus the euro has become stronger.nytimes. That would hurt. Take a look at 1985-88. as encouraged by a low value for the dollar.” http://www.8 percent — if we weight the dollar by how much America trades with individual countries. we need to stop thinking of its value as a marker of economic success. That is a noticeable decline. if only because China is a poorer country and has underdeveloped capital markets. Much of Middle America is booming because of its ability to sell tractors. estimates that the Chinese hold about $1. Europe has shown it can make the European Union and its unified currency work. The American economy has its problems. writes the "Economic Scene" column for the New York Times and writes for such magazines as The New Republic [“The Dollar Is Falling. so policy makers have only a limited ability to push around long-term exchange rates. Since President Bush started his second term in January 2001. Zarefsky Juniors 2008 130 . in Asia and Latin America for people paying in dollars. But imports are only 16 percent of the American economy. Just as it costs more for an American to buy a fancy meal in Paris. the value of the dollar hasn’t fallen quite as much as it might seem. Over all. a higher value neither brings national success nor predicts future prosperity. it would be naïve to argue that a weak or falling dollar can never hurt the United States. Brad Setser. China is in a more vulnerable position than the United States. We are. When it comes to market prices. Those were good times. A low dollar simply looks bad. travel and otherwise.html?_r=1&oref=slogin] ANXIETY about the dollar continues to spread. and That’s Good News. trillions of dollars worth of currency are traded every day. after all.

This is a benefit many in Congress fail to recognize. 2/14/06. As long as foreign countries take our dollars in return for real goods. but the worst is yet to come. except the time will come when our dollars-. The artificial demand for our dollar.energybulletin. and graciously loan them back to us at low interest rates to finance our excessive consumption. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. we come out ahead. it can’t last. as they bash China for maintaining a positive trade balance with us.” Energy Bulletin.net/node/12987) In the short run.will be received less enthusiastically or even be rejected by foreign countries. and soaks up the huge number of new dollars generated each year. It sounds like a great deal for everyone. In the long run. The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. Texas. In this case that’s the United States.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Dollar Decline Inevitable 131 Collapse of the strong dollar is inevitable Paul 06 (House Representative. http://www. it poses a threat to the country issuing the world currency. along with our military might.due to their depreciation-. The problem is. But this leads to a loss of manufacturing jobs to overseas markets. The shift in sentiment regarding the dollar has already started. the issuer of a fiat reserve currency can accrue great economic benefits. Last year alone M3 increased over $700 billion. as we become more dependent on others and less self-sufficient. and without limits on consumer spending or deficits. This has created a universal demand for the dollar. places us in the unique position to “rule” the world without productive work or savings. Foreign countries accumulate our dollars due to their high savings rates. Zarefsky Juniors 2008 131 . “The End of Dollar Hegemony.

” http://www. Bivens 03. enabling the United States and the world to avoid another global cold or hot war and all the attendant dangers. Pg. he has made presentations at the Pentagon. Still.S. The American predilection for employing "decisive" and other coercive means often has been a point of contention with its partners .S. To put it simply: the "Soviet threat" cemented American hegemony within the Western group. 84) <Under the third option. UNIDIR. First. Of course. dollar as of July 1. including a global nuclear exchange. US hegemony has been increasingly troubled. On balance. and enforcing them. such as nuclear proliferation.1% since its peak in February 2002. US State Department. partners have increasingly viewed the United States as unwilling to pay the economic price of hegemonic privilege. for many years. both for exports abroad as well as in the domestic market. Economic competition is UNIQUELY key to maintaining hegemony. http://www. But the United States can apply substantial leverage to get its way by financial means. leadership would help preclude the rise of another hostile global rival.comw. In recent decades.cfm/briefingpapers_bp140] The value of the U. Conetta 2-5-08. US House Armed Services Committee. "Losing the Moment? The United States and the World After the Cold War" The Washington Quarterly. the benefits of greater international competitiveness prompted by the falling dollar greatly outweigh the costs. or by threatening to withdraw from cooperative enterprises. its hegemony is "the right of leadership conceded to one state by the others. the partners must be convinced of real. but because a world in which the United States exercises leadership would have tremendous advantages. the United States would seek to retain global leadership and to preclude the rise of a global rival or a return to multipolarity for the indefinite future. former Research Fellow of the Institute for Defense and Disarmament Studies. And this perception has grown as globalization has accelerated and international economic competition has intensified. No. 2. and low-level conflicts. adjudicating them. Defense Analyst at RAND (Zalmay. The terms and price of the relationship are always at issue . and growth.org/content.6 America's position is not unlike the position of Athens in the Delian League as described by Isocrates (circa 300 BC). U. Such a vision is desirable not as an end in itself. rule-governed system in which one polity enjoys predominant influence in defining the rules. such a world would have a better chance of dealing cooperatively with the world's major problems. Zarefsky Juniors 2008 132 .especially since the mid-1960s. products. stability.S. legitimacy. and has led to an accumulation of foreign debt that will have to be repaid in the future. The primary costs of the falling dollar are higher prices for imported goods and for American tourists traveling abroad. U.S. By this we mean that it has enjoyed a predominant position among this group of states. Finally. Prefer this: assumes their ev and cites empirical warrants. especially in the economic and military fields . this is the best long-term guiding principle and vision. RETHINKING GRAND STRATEGY. the presence of two million Warsaw Pact troops within easy striking distance of the western European heartland helped guarantee America's position and its preferences within the alliance. More significantly: since the early 1970s. Economic Policy Institute [“The benefits of the dollar's decline. 18. 2003 had fallen by 9. Carl: co-director of the Project on Defense Alternatives.epi. economy." 7 Hegemony depends on the acquiescence of the junior partners and on their expectation that deference to the hegemon will yield greater absolute gains. nor is the subordination of the junior partners complete.” Project on Defense Alternatives. Vol.and that this position is partly institutionalized. Hegemony is a hierarchal. The result is global nuclear exchange Khalilzad 95.html] Since the Second World War the United States has enjoyed a hegemonic position within the "western" camp. and other governmental and nongovernmental institutions in the United States and abroad [“Cul de sac: 9/11 and the paradox of American power. The United States currently has an enormous trade deficit (importing more than it exports). The hegemon disciplines its partners by reminding them that it is always best to bandwagon with it. positive benefits in terms of security.democracy.1 The benefits of the falling dollar vastly outweigh the costs for the U. Second.as are individual policies. free markets. Army War College. Given this trade deficit. or by threatening to "act on its own" as it sees fit (with system-wide effects).S. the global environment would be more open and more receptive to American values -. threats of regional hegemony by renegade states. America's hegemonic position among the "western" states does not depend on coercion. The primary benefit is increased price competitiveness of U. and the rule of law.org/pda/0802rm13. the "indispensable nation". which represents a significant drag on efforts to spur economic growth and create jobs. leadership would therefore be more conducive to global stability than a bipolar or a multipolar balance of power system. National Defense University.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand Impact: Econ Comp K2 Heg 132 A decline in the dollar spurs economic growth and is critical to maintaining economic competition. Josh: economist at the Congressional Research Service.

10/15/07 BYLINE: By MARTIN FELDSTEIN. A weak currency is a problem if it results from investors losing confidence in an economy. Instead. the story is very different. since it increases competitiveness. 12/23/2007. A more competitive dollar is good for America. Financial Times (London. http://www. Since a falling dollar raises the cost of imports and increases the export demand for US products. US exports will not increase. and he wrote my econ textbook last semester.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Impact: Econ Competition 133 A weak dollar is good—improves competition. reducing the probability that the current weakness will turn into an outright recession. Gregory Mankiw. Looking further ahead. In that case. relative in-creases in the prices of tradable goods would be offset by lower inflation in other goods and services.com/2007/12/23/business/23view. England). and avoids major economic downturns through the housing market. the result would be to weaken their currencies and prevent the dollar's decline. A declining dollar will then help to maintain growth and employment by raising exports and causing American consumers to shift their spending from imports to domestically produced goods and services. causing the current US economic weakness to get worse and potentially leading the future rise in household saving to precipitate a US economic downturn. Financial Times. promoting exports and bolstering the economy. Markets must look beyond the slogan that a strong dollar is good for America to recognise that a more competitive dollar will help sustain US growth and is necessary to correct America's trade deficit. 13. consumer spending will slow. But the overall inflation rate need not rise if the Federal Reserve sticks to its goal of price stability. This outcome is unlikely for the fundamentally sound American economy. The falling dollar should not be seen as a problem for the US economy. and global exports N. SECTION: COMMENT. The falling dollar is good.html?ref=business] By making United States bonds less attractive to world investors. Treasury secretaries often repeat the mantra of favoring a strong dollar. A more competitive dollar will raise net exports.” New York Times. If foreign central banks were instead to lower interest rates or foreign governments to engage in exchange market intervention. as occurred in Mexico in 1994 and several Asian countries in 1997. as the US household saving rate rises from its current low of nearly zero to a more normal level. economy. The dollar’s falling value is one reason exports of goods and services have grown more than 10 percent in the past year. With appropriate policies. the dollar's decline will correct the imbalances that threaten the global economy without higher inflation in the US or decreased growth in the rest of the world. Governments of our trading partners must recognise that the dollar's decline will weaken demand in their economies and should use fiscal and regulatory measures to maintain their growth and employment. The most damaging cases are the episodes of sudden capital flight. depreciation is not a malady but just what the doctor ordered. but these pronouncements are based more on public relations than hard-headed analysis. Zarefsky Juniors 2008 133 . Pg. If that happens. But if a weakened currency comes about because the central bank is trying to stimulate a lackluster economy. driving down aggregate demand. October 15. Nor should the falling dollar be a problem for our trading partners if they take the appropriate measures to offset the reduction in demand that will be caused by their declining exports and rising imports. Any perception that foreign economic policy is responsible for US economic weakness would exacerbate the current protectionist mood in the US Congress. a dollar decline by itself puts upwards pressure on the US inflation rate. Professor of economics at Harvard.nytimes. A depreciation of the currency is not in itself to be feared. lower interest rates from a monetary expansion also weaken the dollar in currency markets. but fear of it is one reason that Treasury secretaries maintain public fealty to a strong dollar. The best way for foreign governments to stimulate demand would be by revenue neutral fiscal changes (such as tax-financed increases in investment incentives) or by regulatory changes to facilitate increases in consumer spending and construction. [“How to Avoid Recession? Let the Fed Work. A weaker currency makes domestic goods more competitive in world markets. 2007 Monday London Edition 1.

cnbc." Ross added that the rate of growth in U. CNBC 7-2-08 [“Which Is Better -. who likes the weak dollar.S.Strong or Weak US Dollar?” http://www. chairman and CEO of WL Ross & Co told CNBC Wednesday.we have not -. Wilbur Ross. exports had exceeded the rate of imports ever since the dollar started its descent.but there has been pretty good growth in exports driven by the weak dollar. "I believe one of the few things that's helping to bolster the economy now is the growth in exports.com/id/25486214] But there are those who disagree. Zarefsky Juniors 2008 134 . I believe that the only way that we can compete with our high wages and high standard of living is by a weaker dollar.Shock/Inflation Adv Northwestern Jeff Zhang/Gautam Uphadya/Raj Patel Antonnuci/Paul/Mulholand XT: Impact: Econ Competition 134 A lower dollar creates a larger export market. "I'm one of the few people as an American." Ross told CNBC. so I'm actually an advocate of the weaker dollar. Not that we have unbalanced a favorable trade balance -.