Oil prices are carrying on the trend from the second half of 2014 and continuing to drop to lows not seen since 2009.  Energy stocks overall on Wall Street were the worst performing of 2014.

The U.S. Dollar has continued its strong performance at the end of 2014, and this week has hit its highest level since March 2006.  Problems for competitor economies in Asia and Europe have resulted in the dollar index, which measures dollar strength against several other major currencies, reporting 9 year highs of 90.90 as of this morning.

Against the Euro, the dollar has reached a four and a half year high and against the Yen, a seven and a half year high.  All of this points to the U.S. being the global market leader early in 2015, in spite of the so-called oil price war with Saudi Arabia and job losses as the oil and gas industries respond to a lower price climate.  Regardless of the worrying particulars of the U.S. energy scenario on its own, it is important to assess it in context:  China’s economy is slowing as it moves from investment to consumption; Japan has fallen into recession and Russia faces a similar threat in the near future; and growth in Europe is crawling.

Surprising news has come from Russia as we begin the New Year, with oil output for 2014 reaching a record high average of 10.58 million barrells per day.   The Russian Energy Ministry data also highlighted new records for oil and gas condensate production in December of 10.67 million bpd.  Russian energy exports to China also reached new highs of over 22.6 million tons (452,000 bpd) with this forming an integral part to Russia’s post-sanctions strategy of diversifying its international energy clients with a specific focus on the Asian markets.  The Energy ministry is forecasting a decline to 525 million tons in 2015 in light of falling oil prices and an impending recession, while the IEA is predicting a 1% drop in oil output overall for 2015.  Gazprom released figures indicating an output drop of 9%, an all-time low, citing the war with Ukraine as the main reason.

Still it seems that anything can happen in 2015.

In the late 1980s, the Soviet Union was forced into an embarrassing scramble for money. It tried to make deals with numerous banks, but the funding offered was far smaller than what the country required. Food shortages worsened, and Moscow needed the help of governments in the West, for which the USSR effectively had to allow Eastern European countries to assert independence.

Writing in 2007, some warned against the consensus that oil prices would stay high:

What lessons can we learn from the Soviet collapse and apply to the current situation in Russia? First, we must remember that Russia today is an oil-dependent economy. No one can accurately predict the fluctuations of oil prices. The collapse of the Soviet Union should serve as a lesson to those who construct policy based on the assumption that oil prices will remain perpetually high. It would seem that in our country, which has lived through the collapse of the late 1980s and early 1990s, this fact would be evident. But as soon as the prices went up again at the beginning of 2000 and in 2004 became comparable in real terms to those at the beginning of the 1980s, the idea that “high oil revenues are forever” has gained an even wider acceptance.

Russia today isn’t the same top-down, command-and-control economy that it was in the 1980s, but the dynamic hasn’t changed entirely. The country is still hugely dependent on oil, particularly in terms of tax revenues and exports.

And Yego Gaida, the Russian economist, r thinks the collapse of the Soviet Union is still relevant for modern Russia:

One more lesson that is relevant for Russian politics today is that authoritarian regimes, although displaying a façade of strength, are fragile in crisis. In conditions of relative stability, society is prepared to tolerate the lack of real elections. People are prepared to come to terms with this situation as an inevitable and habitual evil. But they will do so only until the country encounters a serious challenge, requiring decisive and tough measures in order to adapt to unfavourable conditions.

J. Bradford de Long writes:  When it became clear in late 2008 that the global economy was headed toward a crash at least as dangerous as the one that had initiated the Great Depression, I was alarmed, but also hopeful. We had, after all, seen this before. And we also had a model for how to mitigate the damage; unfortunately, policymakers left it on the shelf.

Roosevelt’s New Deal policies sometimes conflicted with one another, and quite a few of them were counterproductive. But, by trying everything, and then scaling up the most successful policies, Roosevelt was ultimately able to turn the economy around.

And so, in late 2008, the way forward seemed obvious: recapitalize the banks, guarantee loans, use the government-backed housing lenders Fannie Mae and Freddie Mac to resolve underwater mortgages, drop short-term interest rates to zero and use quantitative easing to prevent deflation or dangerously low inflation, and embrace deficit spending. Then, as events evolved, we would reinforce those policies that seemed to be working and gradually drop those that seemed to be ineffective or counterproductive.

But that was not what we did. Instead, each proposal faced its own opposition. Some worried that recapitalizing the banks would reward the very institutions that had caused the problem. Others fretted that resolving underwater mortgages would reward feckless borrowers. Still others raised concerns about expansionary fiscal and monetary policy. And some favored one set of polices (say, resolving underwater mortgages and recapitalizing the banks), while opposing all the others (for example, deficit spending and raising inflation expectations).

Six years on, the economy has yet to fully recover and the problem persists. The usually wise economist Martin Feldstein makes the case for a set of policies designed to stimulate demand, including increasing investment tax credits and shifting the corporate-tax burden to firms that do not spend very much.

Feldstein’s ideas are promising; and, in line with the lessons of the Great Depression, they are definitely worth trying. The trouble is the rhetoric surrounding his proposals. The article’s headline, “The Fed’s Needless Flirtation With Danger,” is followed by warnings that quantitative easing could “increase the risk of financial instability.” Instead of simply promoting his policies, Feldstein presents them as a “safe and effective alternative” to other approaches. His proposals, he argues, are not an additional arrow in the quiver, but replacements for traditional Keynesian policies.

Pushing your ffavorite recipe at the expense of other is not productive. As policymakers continue to seek a path out of the ongoing malaise, it would be wise to remember Roosevelt’s words before he led the US out of a very similar crisis. “The country needs and…demands bold, persistent experimentation,” he said in 1932. “Take a method and try it. If it fails, admit it frankly, and try another. But above all, try something.”

Jean Pisani Ferry writes: Eurozone monetary officials are expected to make history when they gather for the European Central Bank’s next policy-setting meeting on January 22.

The ECB has many reasons to launch QE.  Low inflation is already a serious obstacle to economic recovery and rebalancing within the eurozone. Outright deflation would be an even more dangerous threat.

Financial markets consider QE so likely that the largest part of its bond-rate and exchange-rate consequences have already been priced in. Should the ECB not launch QE,  markets would confront an abrupt and damaging unwinding of positions: long-term interest rates would rise, stock markets would sink, and the exchange rate would appreciate. That is not what Europe needs as it struggles.

Jens Weidmann, the president of the German Bundesbank argues that the consequences of recent price data may be less serious than believed, while those of full-fledged QE could be more serious than assumed.  At a time when the US data seem to validate the Federal Reserve’s strategy, why is the ECB hesitating?

The Bundesbank fiercely opposed the ECB’s conditional support of debt-distressed eurozone members, but German officials do not dispute the legitimacy of wholesale bond purchases for monetary-policy purposes.

In principle, QE has nothing to do with sovereign solvency. It is a monetary instrument that the central bank must rely on when its policy interest rate has hit the zero lower bound and thus cannot be pushed lower.

But, by lowering long-term interest rates, central-bank purchases of government debt can help contain government debt service. In this way, QE can keep solvent a government that otherwise would be insolvent.

Japan is a case in point. The Bank of Japan already holds government securities worth 40% of GDP, and it is committed to annual purchases worth 16% of GDP.   With annual purchases amounting to twice the deficit, it has become hard to speak of a “market” for government debt. In fact, the BOJ sets the price.

Such a situation can make the central bank hostage to the government’s behavior. The BOJ’s action is predicated on Abe’s commitment to restoring the sustainability of public finances once deflation has been defeated and the economy has returned to growth. Should Abe fail to deliver, the BOJ would be trapped. If it stopped buying government debt, it could trigger a sovereign crisis and reduce the value of its own portfolio.  But continuing its purchases would tighten the government’s grip.

Trust in the government is therefore vital for any central bank that embarks on QE. The EU fiscal framework lacks credibility and does not give the ECB confidence that governments will continue to pursue sustainability after its bond purchases shelter them from market pressure even further.

Moreover, unlike its counterparts, the ECB does not face a single interlocutor. This explains why the ECB, once obsessed with the risk that governments would coalesce to assail its independence, has turned into the staunchest advocate of fiscal-policy coordination.

These concerns do not diminish the need for bold unconventional action against deflation, and it should not prevent the ECB from launching QE. The parallel with Japan highlights the need for governments to behave responsibly, individually and collectively. Europe’s elected national leaders have a large role to play, and they must not eschew their duties. The more confidence they give to the ECB, the more effective QE will be.

Jared Meyer writes:  Even though the Federal Reserve has ended its massive bond purchases, interest rates remain near zero, where they have been held since late 2008. Low interest rates remain even though the economy has improved.

The Fed believes that if it can keep long-term interest rates low, business investment and consumer spending will increase and the economy will grow. However, the Federal Reserve is unable to singlehandedly create economic growth. Its role is instead to execute sound, consistent monetary policy, which provides the backdrop for a strong economy.

Historical evidence shows that interest rate increases during the early-to-middle stages of economic expansions do not endanger economic growth. As Boston College economics professor and Shadow Open Market Committee Member Peter Ireland argues,“These higher rates are nothing to be feared. To the contrary, they are a necessary component of a broader policy strategy designed to keep the economy growing along a stable path while maintaining the environment of slow-but-steady inflation that has served the country so well, going back more than a quarter century to the days of Paul Volcker’s Fed chairmanship.”

The Federal Reserve’s continued accommodative monetary policy is unlikely to increase GDP or employment growth. Instead, suppressing interest rates in times of increased and sustained economic growth increases the risk of inflation. It is time for the Federal Reserve to let interest rates rise with the improved economy.