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Skyrocketing Oil Prices: Will rising oil prices and the crisis in Japan affect the United States’ recovery?

Recently, the economy has been showning signs of strength. With consumer spending on the rise and the stock market’s continued growth, many experts and economists believe that the recovery will continue. However, with the recent tragedies in Japan and unrest in Libya, our economy – and more importantly the recovery – sits in a delicate balance. Many are worried that the nuclear destruction in Japan will have a lasting effect on the United States economy and its recovery. However, most economists believe that the bigger problem comes from rising oil prices.
More importantly, an extended period of high oil prices could have a largely negative impact on our economy. As long as political unrest continues in the Mideast, we can expect oil prices to stay high and the stagnation U.S. growth to continue.

According to William Alden of the Huffington Post, for each $10.00 increase in price per barrel of oil, the price at the gas pumps in the rises about $0.25. With the possibility of some of the highest oil prices our nation has ever seen, consumer spending could be on the way back down again in the near future.

The future outcome of potentially higher energy prices remains to be seen at this point. On March 18, the price of a barrel of oil cleared $116. Gus Faucher, the director for macroeconomics at Moody’s said, “a spike in energy prices to $125 or $150 a barrel is the primary threat to the recovery at this point.” Oil prices of this level have not been seen since 2008.

Sandra Pianalto, the president of the Federal Reserve Bank of Cleveland said in a recent Wall Street Journal article that the housing market will continue to deter economic growth. She described unemployment as a “lingering problem” in our nation. A large spike in energy prices could create skyrocketing inflation. Couple inflation with the possibility of decreased consumer spending and lagging housing market, and our economy could be heading for another downturn.

In a recent study released by Fannie Mae’s Economics and Mortgage Market Analysis Group, projected economic growth for the year has been lowered. The unpredictability of the oil price hike as well as the duration any price spike may last is enlisting new doubts and fears on economic growth.

In the days and months to come, the situation overseas will have a large effect on what happens with the U.S. recovery. Here we are, more than 2 years after the beginning of one of our nation’s deepest recessions to date, and we are still struggling. However, we now have new wounds to accompany with the injuries we are still nursing from the housing and real estate collapse of 2008-2009.

For retirees, it is important to remember to focus on the right thing when planning your lifestyle in retirement. You may be thinking about how inflation, market volatility, and slow economic growth may affect your retirement accounts.

However, you should be focusing on protecting your assets. More importantly, protect the amount of money that you need to last throughout your retirement. Retirees should develop an income plan with safe and reliable income. Once you develop an investment plan that guarantees your income, then you can take some risk on the extra money you have available.

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