Wednesday, August 28, 2013

US-Syria saber-rattling is already damaging the economy

Even if the US threat of a potential military intervention in Syria is just a bluff, it is already doing damage to the global economy. Brent crude just broke through $117/barrel. Imagine just for a minute what this does to emerging economies whose currencies have been decimated recently (see post). They still have to pay for oil in dollars.

Brent crude October contract

Back in the US, businesses and consumers alike are dealing with a sharp spike in interest rates and a massive federal budget fight. Potential outcomes of the fiscal showdown could include cuts in federal spending (potentially impacting numerous government contractors and their employees), higher taxes, or even a federal government shutdown. Also it's important to keep in mind that it's been less that a year since the Eurozone-related fears began to subside. And now the country has to deal with elevated energy prices?

Those who live in the Northeast and have no access to natural gas to heat their homes will cringe when looking at the chart below - the January heating oil futures. That's money directly out of consumers' and businesses' pockets. The situation with gasoline is similar.

January heating oil contract

Worst of all is the tremendous uncertainty associated with rising tensions in the Middle East. An environment such as this is not conducive to investing in growth and hiring. While the situation in Syria is tragic, the US economy simply can not afford a massive blow that would result from this conflict.
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