No. of Recommendations: 1
The stagflation that the US experienced in the 1970's is normally attributed to inflating the money supply (inflation) and the participants in the economy eventually catching onto what Keyensian economics was doing to their savings and paychecks (stagnation). Had Richard Nixon been a bit more prophetic, instead of saying "we are all Keynesians now" he would have said "we are all onto Keynesianism now". Oil shortages can cause temporary general price level increases, but without increasing the money supply significantly beyond the increases in productivity, over the longer periods of time, the general price levels will be reasonably constant.

Predicting oil prices based on someone's list of scenarios of activities/reactions of Middle Eastern countries is fraught with way too many assumptions or oversimplifications. Most of scenarios, as the Cato Institute paper points out, are often motivated by someone's agenda. Government activities to over rule free market choices seem to be the favorites.

Some by-products of a major military action are often and unfortunately predictable: the effort will be financed, not by immediate taxation, but by deficit spending and eventually by inflation from monitarizing the debt and will tend to expand the powers of government . Having said that, I do not believe the terrorist activities can be judged by their economic consequences weighed against those that could arise from the reactions to our bringing the terrorists to justice. That's too much like blackmail.

Finally, in my judgment, the imprudent spending of the current regime in Saudi Arabia makes them - and probably any regime that might follow them into power - more dependent on the oil consuming nations than we are on them.

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