Monday, July 13, 2020
League of Power

The League of power

"Freedom by Friday"

U.S. Economic Recovery Threatened by Events in Syria and at Home

I would call myself a glass is half full kind of person. I generally try to look on the bright side of things. But the recent events in Syria as well as new economic threats at home make it really hard to believe America is on a path to a solid economic footing. I believe there are three events that could undermine our fragile economy.

First let’s talk about Syria. As the President continues to waffle over whether or not to punish Assad’s regime for the use of chemical weapons against his own people, economists debate what such an intervention would do to our struggling economic recovery. It may seem like a stretch to think that a country that has a GDP of just $75 million (by comparison the U.S. GDP was $16.62 trillion in 2012) could affect our return to more prosperous times in any shape or form. While it’s true that a collapse of a country that has no natural resources or major companies to speak of wouldn’t directly hurt the U.S., that’s not to say that a war with Syria wouldn’t have any economic impact.

Why? Because the civil war in Syria threatens to draw in its far more economically important neighbor Turkey. Turkey has been President Bashar al-Assad’s biggest critic and would like to see his regime toppled. Turkey has all but begged the U.S. and the U.N. to commit to a military strike that would bring an end to Assad’s rule. And although Turkey has publicly said that it won’t enter into any kind of conflict with Syria without international support, Turkey cannot just ignore what is going on. The two countries share a 560 mile land border and Turkey is currently housing about 400,000 of the 2 million Syrians that have fled the country since the conflict began.

Turkey has publicly said it will not enter into a war with Syria without international support and backing, but President Assad’s actions are making it harder and harder for Turkey to ignore. Turkey can no more ignore the war in Syria than the U.S. could ignore war in Mexico or Canada.

And while Syria may not matter much to the global economy, Turkey sure does. Turkey has been an important emerging market in the last decade. In fact it has the fastest growing economy in all of Europe right now. Unfortunately it also has some rather large foreign debts to settle, Turkey has more than $300 billion in foreign debt right now. A war with Syria would strain Turkey’s newly emerging economy and any kind of Turkish collapse would result in a global financial catastrophe.

And that’s just the tip of the iceberg. A war with Syria has the potential to significantly impact the price of oil and send gas prices in the U.S. soaring. How does a country who is not a major oil producer impact the price of oil? Well, while Syria is not a major oil producer its neighbors are. Saudi Arabia and Qatar, countries that back the rebel forces, both are. As well as Iran and Russia, who are backing President Assad. If a war with Syria emerges it will pit the world’s major oil producers against one another. Any type of conflict would most likely disrupt oil production in these Middle Eastern countries as they intervene and affect shipping routes, both of which will drive up the price of oil and therefore gas prices in the U.S.

The looming threat of war with Syria has already driven up the price of oil in just the last two weeks. The price of crude is up from below $95 a barrel back in June to $110 now. But it could go a lot higher if the situation in Syria deteriorates anymore. The conflict could add another $10 per barrel to already inflated prices. If the price of oil hits $120 to $130 a barrel, Americans will feel the pinch at the pumps and impact our stuttering economic recovery.

Meanwhile economists have begun to realize just what affect President Obama’s and Fed Chairman Ben Bernanke’s money printing will have on the U.S.’s economy-rampant and runaway inflation.  In fact both men are hoping for it! The U.S. national debt sits at $16.7 trillion right now and it’s expected to easily hit $17 trillion by the end of this year. Rather than make cuts or reduce spending President Obama and his cronies are hoping to erode away the debt by inflating prices. Very soon the price of goods and services will double, even triple. Economists are predicting inflation to go up anywhere from 30-300% over the next year.

If you are skeptical of the coming inflation, then you are going to be one of the many Americans who are unprepared by it. Just because the media has been slow to talk about inflation does not mean it’s not a huge threat to the U.S.’s fragile economic recovery.  The sharp and unexpected rise of the stock market has arbitrarily overshadowed the news of any coming inflationary period. But that will all change over the next few months.

If I were you I’d start hedging my bets by investing in gold. Gold, currently sitting at around $1360 an ounce is about $560 off its September 2011 peak price of $1920 an ounce. The more inflation rears its ugly head, the more important it will be to own gold so as to not erode your money’s purchasing power.

Rising gas prices, coming inflation, anemic economic growth all spells a not so rosy picture for American workers. Economists predict employers will be conservative yet again this year when considering raises and year-end bonuses. Since the recession started American workers have experienced falling income levels and a reduced standard of living…all while their corporate employers get richer and fatter off of them. It should be noted that this trend is expected to continue over the next few years.

Your best bet against further reducing your standard of living is to become less reliant on one single source of income. The richest men in American will tell you they got that way with multiple streams of income flooding their bank accounts. This way if one source dries up (i.e. you lose your job), there is no need to panic because you still have income coming in from other sources. It’s a hedge against coming inflation and the possibility of losing your job or reduced income.

Good luck!

Mark Patricks

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