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Several new economic developments have occurred in the United States during this last quarter. The recent drop in gas prices, credited to the drop in global oil prices led by OPEC, is one of these noteworthy developments. This has led to increased spending in the U.S, especially in the retail and automotive industries. There have also been significant increases in employment, as well as a strengthening in the value of the dollar. While these all seem like boons to the United States, some of these factors have the potential to not only hurt the U.S. economy, but economies around the world as well. As a result, economists are warning the U.S. to take caution, especially with its fragile economy now leaving the period of quantitative easing by the Federal Reserve.
The fall of oil prices is a huge global concern, although it does not seem to be as much of a worry in the United States. These drops have led to low gas prices in the United States, coming in at an average of $2.63, which has in turn boosted consumer spending in the retail and automotive sectors. Retail sales are considered a key economic indicator in the U.S., since consumer spending is such a significant part of the economy. Thus, these sales and price numbers are seen as a sign of strength in the U.S. economy, and an indication that the economy is continuing to grow and strengthen. However, the causes of this recent prosperity are not considered a good thing by all countries. The low oil prices that are helping the U.S. so much are starting to badly affect other nations. Venezuela, normally known as a prime oil producing nation in South America, stands to lose billions of dollars in revenue. It is not alone, as other OPEC countries in total stand to lose over $200 billion. Some of these countries, including Saudi Arabia, have large cash reserves set aside to deal with this. However, for countries like Venezuela and Nigeria, this will be a major blow to financial assets, and domestic unrest may occur. Also, European countries that are struggling with deflation will see the problem grow worse with low energy prices; the same case holds true for Japan. International business will suffer as well, as infrastructure industries worldwide will be impaired, and energy firms will also see business falter. Producers of shale oil and crude oil might have to shut down, and other oil firms will have to find alternative ways of raising cash.
Another big concern is the strengthening of the U.S. dollar. The dollar just hit its highest value against the Japanese yen in seven years, signaling the beginning of a period of excessive dollar strength. There is certain leverage this can give to the U.S. One way is that U.S. consumers can pay lower prices for foreign goods and another is the government can pay off its debts more efficiently. However, it can negatively impact economics at home by hurting the manufacturing industry, possibly its biggest GDP contributor, and making goods sold abroad more expensive. Also, tourism will be affected as foreign visitors find it much more expensive to travel to the U.S. Unfortunately, the dollar strengthening stands to have more global impact than just making U.S. goods and tourism more expensive. Several emerging economies are dependent on loans taken out in U.S. dollars; the growing value will make these loans much harder to pay back, increasing risks of default and economic instability. Also, as the dollar continues to grow in value compared to the yen and the euro, financial weakness in these countries may be exploited, as many of them have liabilities denoted in U.S. dollars.
Overall, the U.S. is using many economic policies right now that appear beneficial domestically. However, its impact worldwide is negatively affecting many countries, and the global economy faces further destabilization.
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