"I'm not very worried," explains Fed Vice Chairman Stan Fischer in a very Bernanke-"contained"-like nonchalence about the total collapse of oil prices (and US oil producer stocks). Sharply lower oil prices will boost spending and aid U.S. growth, Fischer stated in a mind-blowingly naive speech for the 2nd-most-important-monetary-policy-maker-in-the-world, adding that lower oil prices were "a phenomenon that’s making everybody better off."
We don’t understand his ignorance: as Raul Ilargi Meijer noted earlier, Fischer is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost? This is just complete and bizarre nonsense.
Sharply lower oil prices will boost spending and aid U.S. growth, said two of the Federal Reserve’s most influential officials, playing down the risk that plunging energy costs could push inflation further below the Fed’s goal.
Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley, speaking at separate events yesterday in New York, both stressed the positive economic impact from the steepest decline in oil prices for five years.
“I’m not very worried,” Fischer told an audience at the Council on Foreign Relations. “The lower inflation that we’ll get from the lower price of oil is going to be temporary.”
He also said lower oil prices were “a phenomenon that’s making everybody better off.”
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Perhaps Mr. Fischer should ask the owners of oil producer and servicer stocks, the workers in Texas and North Dakota, as well permits collapse..
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Here's some 1st grade math...
- Money people have to spend (which is the number that is US CONSUMPTION) = X
- Money people have to spend on Gas = GAS
- Money people have to spend on everything else = EVERYTHINGELSE
Therefore: X = GAS + EVERYTHINGELSE
Now if Gas becomes cheaper by 30%... the savings are merely spent on more of everything else OR 'saved' - there is not boost in US consumption...
How does it make X any bigger?
How does that make anyone better off?
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Clearing Up A Couple Of Myths
It is important to remember that while the mainstream media keeps touting the "benefit to the consumer" from a decline in energy prices, it is not a tangible one. Think about it this way. When I receive a "true" tax credit from filing my taxes, I receive an actual check from the Treasury Department. For many individuals, they look forward to their "refund" to fund purchases of a television or take a family trip. However, when an individual fills up their automobile, there is not an extra $10 bill that shows up in their wallet, therefore, the incentive to spend really is not recognized and the "savings" get washed within already tight consumer budgets.
As I showed recently, lower gasoline prices do not equate to higher consumption.
Also, there is little evidence that lower energy prices equates to higher levels of economic growth. In fact, as shown below, sharp declines in energy prices has actually been coincident with lower economic growth rates.
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Just don't tell Fischer, Dudley, or anyone on CNBC this!!!