Demand destruction: How Iran will break the US economy

[Mahmoud Ahmadinejad]

DEMAND DESTRUCTION \dɪˈmænd dɪˈstrʌkʃən\ n : The process by which persistent high prices or limited supply cause a permanent or sustained decline in the willingness or ability to purchase a good or service.


the two-word phrase “demand destruction” feels severe, harsh, maybe even violent.

In practice, that’s not far off: It means that the magnitude of a price shock can be so large, so persistent and so painful that spending behaviors shift – sometimes to the point where they permanently alter the course, the structure and the stability of a sector or an entire economy.

Earlier this month, the International Energy Agency warned that in the wake of the “most severe oil supply shock in history … demand destruction will spread as scarcity and higher prices persist.”

In the US, this “destruction” has already started to unfold.

Fast-rising gas prices have quickly eaten away Americans’ hard-earned pay and tax refunds – landing the heaviest blows on those who can least absorb them.

Inflation has jolted higher, wage growth sharply slowed and consumer sentiment slumped, a potential harbinger of further fallout to come.

American consumers have remained resilient thus far. But economists warn that the longer the Iran war keeps the critical Strait of Hormuz blocked to oil tankers and cargo ships, the greater the danger of drastically worse outcomes.

“Time is not the ally of the American economy,” said Joe Brusuelas, chief economist for RSM US, an accounting and consulting firm.

 

[serenity]

DEMAND DESTRUCTION \dɪˈmænd dɪˈstrʌkʃən\ n : The process by which persistent high prices or limited supply cause a permanent or sustained decline in the willingness or ability to purchase a good or service.


the two-word phrase “demand destruction” feels severe, harsh, maybe even violent.

In practice, that’s not far off: It means that the magnitude of a price shock can be so large, so persistent and so painful that spending behaviors shift – sometimes to the point where they permanently alter the course, the structure and the stability of a sector or an entire economy.

Earlier this month, the International Energy Agency warned that in the wake of the “most severe oil supply shock in history … demand destruction will spread as scarcity and higher prices persist.”

In the US, this “destruction” has already started to unfold.

Fast-rising gas prices have quickly eaten away Americans’ hard-earned pay and tax refunds – landing the heaviest blows on those who can least absorb them.

Inflation has jolted higher, wage growth sharply slowed and consumer sentiment slumped, a potential harbinger of further fallout to come.

American consumers have remained resilient thus far. But economists warn that the longer the Iran war keeps the critical Strait of Hormuz blocked to oil tankers and cargo ships, the greater the danger of drastically worse outcomes.

“Time is not the ally of the American economy,” said Joe Brusuelas, chief economist for RSM US, an accounting and consulting firm.

You really need to discover how evolving in plain sight works one way humanity never honored since dawn of civilization. Navigate by heartbeat beyond relative time theology I don't care which ideology you defend cradle to grave, humanity misleads ancestries every generation gap last 7,000 years in every reality today.

You are fighting the wrong people.

 

[Mahmoud Ahmadinejad]

A chain reaction of destruction​

Energy touches every single household, industry and sector.

“There’s more than a billion prices in the US economy, so demand destruction is going to be different by industry, by income cohort,” Brusuelas said.

Mapping out seemingly abstract consequences from a conflict with no certain duration or outcome is complex.

However, Brusuelas and fellow RSM economist Tuan Nguyen have sought to do just that. In a recent note, they used past oil shock outcomes to help chart out potential paths for Americans and the broader economy.

The erosion of Americans’ hard-earned pay can mean fewer restaurants frequented, trips taken, cars bought and houses sold; dampened business investment and drops in demand can lead to layoffs, heightening the economic pain.

 

[Mahmoud Ahmadinejad]

• First, oil prices spike and unleash an extra tax on every household and business. More money put toward energy costs is less money spent elsewhere.
• Second, confidence sinks. And when people fear that bad things could happen, they start cutting back on discretionary spending.
• Then, big purchases freeze. People will put off buying that new car or hold off on signing all those mortgage documents.
• Next, businesses feel the squeeze. A drop-off in consumer spending coupled with the costlier diesel in the semis transporting their wares squeezes margins. Investments and hiring are put on hold, and eventually cost-cutting and layoffs set in.
• Then, the Federal Reserve gets involved. Oil-driven inflation could force the US central bank to raise interest rates, which would deepen the slowdown.
• Finally, if high prices persistent, permanent behavior changes occur. People buy electric vehicles, workers seek out remote arrangements, businesses turn to technology as a replacement for human labor.
• On top of all of this, other commodities could see compounding supply problems. It’s not just oil that typically moves through the Strait of Hormuz. Fertilizer shortages could mean higher food prices; hits to helium supply could slow chip production and make medical care even more expensive; sulfur and natural gas disruptions could raise industrial costs.