In response to Linkedin Question :- Weather Economy is decided by Crude Oil or Money?

Oil is just a commodity, yes a large one but after all a commodity. It is a resource required to drive the demand of various activities in the economic growth and set up of Economies. In 2008 almost $2.7 trillion of Crude Oil was traded, big enough right. But when you compare it to World GDP it is less than 5% of almost $60 trillion (World GDP). Yes there is lot of value added at various stages and that increases the influence on Crude Oil in deciding the final GDP numbers. But certainly it is not the Economy decider.

2nd factor which can explain you about why it is not the only driver is CPI. Energy including oil are 17% of Inflation basket (in US). There are 83% other things that is part of inflation basket, so does it explains the World GDP or economies certainly not.

Gulf Countries, they are always profitable even if Oil trades at 30$, if they have excess cash, they create Soverign Wealth Funds and invest in other countries, so higher prices doesnt mean more local investments.

Now coming to money.

Money supply drives prices, no matter whatever the reason be. Price of any thing, stock, commodity, food will increase if more money is chasing it, but does that mean money drives economy certainly not, it is just the means to buy something once economy has given you enough power to buy something.

So what drives economies:-

1. People:- Countries need to be young to grow, where you have more earning population and less dependent population. In other words the earning population earns enough to take care of dependent population.

2. Economic development, which is dependent on government policies, open and investor friendly the country more wealth (in any form) will enter the economy thus making it grow.

3. Literacy. Can you name a developed world economy that is not literate, certainly not. More literate the people are, more connected they will be, more intellectual they will be and more options they will have to drive the economic activity.

4. Innovation:- Innovation does not mean only about winning Nobel Prize, it can also be doing something already being done, but in more efficient manner. Like, producing cheap, micro products etc.

To conclude: Crude is a commodity required to full fill certain tasks of economy. Money is one way of deciding the wealth the economy have and a mode of exchange, it in itself is not a wealth. Economy, is dependent on the activity that takes place within it or associated with it. Thus decided by all (All means all) the action that happens within it.

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