You might imagine, since there was an election in the United States just a few days ago, that I might spend some time this morning talking about how important politics is to the economy, but I’ve got to tell you, I have sort of said throughout my entire career that I really didn’t think one politician or one election really mattered much for the trajectory of the U.S. economy and certainly not the global economy, which is what most of us ultimately really care about. I never once said that George Bush was responsible for the financial crisis of 2008, never said that. You also, if you’ve ever heard me talk before, would know that I also never said that Barack Obama was responsible for the economic and financial market recovery that occurred in 2010/2011, because I have always felt that presidents should never take too much credit when things go right, and they should never take too much blame when things go wrong.

This president that we have right now might test me on that assumption, but I’m still going to hold to that for right now, but I am going to talk today just a little bit about where the global economy has been over the last 12 months, and where the global economy seems to be headed. Because, over the summer, some interesting things began to happen after a couple years of some pretty strong economic recovery.

I was in a conference in Barcelona just a month and a half ago, and a real estate developer from North Carolina walked up to me and said, “Now, young lady, you’re going to explain to me” — and I love it when people call me young lady because I have gray hair so clearly I am no longer young, but we’ll skip over that — “young lady, you’re going to explain to me why my business dropped 10 percent over the summer.”

I thought, Oh wow, that’s kind of an interesting piece of data. And I went to a conference two weeks later, and a gentleman walked up to me and said, “What happened to the global economic recovery? Where did it go?” I began to get this interesting anecdotal evidence supported by statistical evidence — interest rates rising dramatically in Argentina, problems in Turkey, financial markets worldwide that outside the U.S. have been doing very, very poorly — lots of statistical data, lots of evidence that suggested that the global economic expansion might be in trouble. So I want to talk today and give you my perspective on those stories, on those facts, but in order to do that, we have to back up just a tiny, little bit and ground our talk in history.

Where have we been over the last 18 months? Because you see, 2017, last year, was a very unusual year for the global economy. 2017 was the first year of synchronized global growth worldwide, global growth pretty much everywhere, no matter what country, area, or industry you were talking about. 2017 was a year of synchronized global growth. The first one that we experienced since the financial crisis. You see, most of us had become accustomed to a world where growth was kind of patchy, so you would have China growing very strongly early in 2009, 2010 and 2011, but the U.S. experiencing a weak recovery. As soon as the U.S. began to pick up, Europe began to be mired in a pretty serious debt crisis in 2013 and 2014, so we became accustomed to this sort of patchy economic growth where one region would be doing well but another region would be doing poorly. But we got to 2017, and suddenly the entire globe was growing.

Last year the U.S. economy grew about 2.3 percent. Last year China grew about 6.7 percent. Now, the funny thing is I’ve noticed that China always seems to grow about 6.7 percent. I don’t know if you’ve noticed that or not, but the number always seems to be 6.7 percent, somewhere between 6 percent and 7 percent. So China grew about 6.7 percent last year. India was the world’s fastest growing, large developing economy, and it grew it almost 7 percent last year, so India grew very, very strongly last year. You had growth in Australia, New Zealand; you even had growth in places that had really slowed down. Russia managed to grow last year after being mired in a very deep recession in 2015 and 2016. Russia experienced a very serious recession in 2015 and 2016, but in 2017 even Russia managed to grow, so that was kind of a surprise.

But the biggest surprise last year, in 2017, was that Europe managed to grow faster than the U.S. You see, I already told you that U.S. growth last year was 2.3 percent; Europe’s growth last year was 2.4 percent. And it wasn’t just Germany. It was Italy. It was Spain. It was Greece. Pretty much Europe grew across the board last year, and that was the big surprise. In order to understand where the global economy is going over the next six months or so, which I believe is a reasonable time frame, most of us have to understand the forces behind synchronized global growth last year.

Now, I don’t have an entire day to give you a full treatment of this topic, but you can probably figure out already that I can talk for at least eight hours nonstop, right? I can do that. We’re going to truncate this. I’m not going to spend half an hour talking about the effects of quantitative easing in Europe. So lucky for you an economist is going to stand up here on the stage and not talk about quantitative easing. But if you do get bored with that kind of stuff, you can always turn it into a drinking game. So every time I say, “quantitative easing,” you take a drink of a cocktail, right? We’re not going to do that today. We’re not going to play quantitative easing, but I will say, for those of you who are interested, one of the reasons why Europe did well last year is because of the quantitative easing that they put into place in 2015 and 2016.

But I don’t want to focus on Europe alone; I want to talk about what I think is more important for synchronized global growth, and that was oil prices. Oil prices, and the effect that oil prices have on the global economy, has really changed since the financial crisis. Now, in order to understand how oil markets have changed, you’ve got to realize that you sort of break things down, when you talk about any kind of market, into consumers and producers. You know an economist is always going to talk about supply and demand, so the consumers are on the demand side, and the producers are on the supply side. And so if we’re going to talk about the effect oil prices are having on the global economy, we have to talk first about consumers, and then we’ll talk about producers.

Let’s talk about how oil prices appear to be affecting consumers right now. So oil’s been a little bit volatile lately, but in general, oil prices have kind of settled down into a new equilibrium somewhere around $60 a barrel. So the new equilibrium price for oil is about $60 a barrel, and oil prices tend to fluctuate around that $60 range. Sometimes they’ll go down to $50; sometimes they’ll go up to $70, but the new equilibrium for oil is about $60 a barrel. Now, what kind of effect does that have on consumers? Well, most consumers don’t actually care about the price of oil necessarily. What do consumers care about? They care about the price of gas. That’s right; they care about the price of gas.

So if oil hangs out in the $60 range, that means that for most Americans — I won’t talk outside the U.S., but I’ll just talk about the experience of most Americans — how much are they paying for gas if oil is in the $60 range? They’re going to be paying somewhere between $2.25 and $2.75. Basically, they are going to be paying less than what they pay for the bottom line Starbucks latte — not the one with the whipped cream and the caramel and the sprinkles on the top, not the extra 300 calories that you probably don’t need to drink this morning, not that latte. They’re looking at a cheap latte. My sort of highfalutin economic theory is this: Anytime people pay less for a gallon of gas than they do for a Starbucks latte, it does not really affect their behavior one bit. They simply don’t care.

So as long as gas stays below $3.50 a gallon, it doesn’t act as a tax on consumer behavior. It doesn’t act as something that affects the choices that people make day in and day out. So it’s not going to make them take a summer vacation where they drive or, excuse me, don’t drive, stay close to home. It’s not going to make them choose to buy the Ford Escape instead of the Ford Expedition or even the Excursion — I don’t think they have that anymore. But oil, in this range, basically doesn’t act as a tax on consumer behavior. In other words, consumers don’t care, so you can sort of push it aside from the consumption point of view.

But what about oil production in this range? Well, let’s talk about how oil prices have affected oil-producing areas over the last few years. Now, notice I’m being very careful. I didn’t say, “oil-producing countries”; I said, “oil-producing areas” because is the U.S. an oil-consuming country or an oil-producing country? It’s a little bit of both, right? I mean, we’re a large oil consumer, the world’s largest, but we are also one of the world’s largest producers as well. We’re pumping as much as Saudi Arabia and Russia right now, 11 million barrels a day. That’s the maximum production that we’ve ever seen in the U.S., 11 million barrels a day right now. So I can basically say that Montana is an oil-producing area and California is an oil-consuming area, so it’s going to affect different areas in the U.S. differently. So instead of saying “an oil-producing country,” I’m saying “an oil-producing area.” But there are still some countries that only produce oil, and let’s talk about how oil prices have been affecting them.

One of the things you need to understand is that shale oil production in the United States is much more sensitive to price changes than conventional production. Shale oil production is much more sensitive to a price change than normal conventional oil production. There was a study, a working paper, that came out last year in 2017 by a couple of economists. I believe it’s Newell and Schnell or their names or something along those lines right, So these two guys come out with this working paper. One of them is at the National Bureau of Economic Research, so these are legitimate, pretty much unbiased, sources of information, which is hard to find sometimes. But they came out with a study that showed that the new unconventional shale oil production from the U.S. is nine times more sensitive to a price change than conventional oil production.

So what exactly does that mean? Well, it’s sort of counterintuitive, but basically what that means is, again, basic supply and demand. When the price gets really, really high for oil because U.S. production responds very strongly, if the price gets really high, how do producers in the U.S. respond? They produce a lot, right? In fact, I’d rip up the peach trees in my backyard and put oil wells down, right?

Now, when the price gets really, really low, how does U.S. oil production respond? Well, they just turn it off, right? So this acts as a moderating force on global prices. So back in 2015, the price of oil peaked at over $100 a barrel; that was a peak in oil prices. At that time, there were 1,500 wells pumping in the United States, so the rig count was at a high. Rig counts at a high price of oil’s over $100 a barrel, so if supply is really strong, what does that tend to do to the price over time? It pushes it down.

Well, it pushed it all the way down to almost $30 a barrel. That happened in 2016. So the price of oil goes to $30 a barrel in 2016. Let’s talk for a minute about what effect $30 a barrel oil had on the world in 2016. I already told you that Russia experienced a very deep recession in 2015 and 2016. The reason for that is that Russia only produces two things: They produce oil and gas, and they produce fake news. Those are the only two things that they make. So when the price of oil goes to $30 a barrel, what happens to the Russian economy? Well, the Russian economy collapsed. I already told you they went into a very deep recession in 2015 and 2016. They get politically belligerent. They invade Crimea in an effort to sort of distract their citizens from the fact that their economy is in the tank. So that was Russia.

What about Saudi Arabia? Well, when the price of oil got to $30 a barrel in Saudi Arabia, it got so bad they had to let women drive. That’s how bad it got. Yeah, that’s how bad it got. Now, fortunately for all those countries, fortunately for Brazil, fortunately for Venezuela, fortunately for all those countries that only really have commodity production in their economy — it’s really they have very undiversified economies — fortunately for those economies, the price of oil began to come back up in 2016/2017. Now we find ourselves in 2018 where the new equilibrium for the price of oil is about $60 a barrel, and essentially it’s this nice sweet spot.

It’s a sweet spot in the sense that it doesn’t act as a tax on consumers, but the price is high enough that countries that depend on oil can actually make money, countries like Russia, countries like Saudi Arabia, countries like Brazil, countries like Venezuela. So oil now is acting as a global moderator. It’s a moderator of economic fluctuations, which is exactly the opposite of what most of us are accustomed to. Most of us are accustomed to a life where oil acted as a source of volatility in the economy. If you think about the 1970s, if you think about the 1990s, oil acted as a source of volatility. We have now switched to a world where oil is actually acting as a moderating force, and that’s because of the way that U.S. shale oil responds to price changes.

So that was 2017. And at the very end of 2017, we got a surprise in that in the U.S., a massive package of tax cuts was passed, and the IMF, because of those tax cuts, estimated that the world would grow even faster in 2018 than it did in 2017 because of that. Now again, I don’t have time to go into the nitty-gritty details of the tax cuts, but pretty much because I’m an economist, in general it’s no surprise to me that tax cuts early on in the year lifted economic activity. They were a great wind in the sails of the stock market in 2017; they were a big boost to stock prices. But going into 2018, I already pointed out that there were some forces over the summer that started to make me, as an economist, a little bit nervous about the future path of the global economy.

I started to see issues in Turkey where the currency began to collapse, same thing happening in Argentina where interest rates are now 60 percent. Interest rates in Argentina right now are 60 percent in an effort to stabilize that economy. You have problems in Pakistan; you have problems in Indonesia; you have sort of rumblings across the globe. And if you look at stock prices, pretty much across the board outside of the U.S., stock markets worldwide are in negative territory. And October wasn’t exactly the greatest month for U.S. stocks either. So I think we have to sort of look at the forces that are disrupting the global economy right now, and I want to draw your attention to three of them.

There are three things right now that I think you can sort of point to as sources of global economic instability. So oil prices are acting as a moderating effect, but you’ve got these other things that are bringing some instability into the picture, and I want to talk to you about those things right now very quickly. The first thing is Brexit. The first thing that’s destabilized in the global economy is Brexit. Now you may say to yourself, We’ve been talking about Brexit since 2016. Everybody knows it’s going to happen. Why is it destabilizing things right now? Well, it’s destabilizing things right now because we’re running up against a deadline of March 29, 2019. That’s five months away. There is a hard deadline for Britain to come up with a deal with Europe to sort of manage their exit from their agreement.

I do think that up until this point Britain thought that they could have everything; they could have all the good without the bad. They could have all the good, “the good” meaning the free movement of goods and services, without what they perceive to be bad, which is the free movement of people. So they wanted to cut some sort of deal that looked like NAFTA, where you could have relatively free movement of goods and services without the free movement of people. So Britain thought that it would be easy. They thought that’s what they would do. So they took a plan to Europe, the Chequers plan, right? They take this Chequers plan to Europe, and the French basically said, “No, we’re not going to give you that deal.”

I think it’s important to point out why the French are being so difficult with Britain. It’s not actually that difficulties are coming from Germany; they’re coming from the French who say, “We’re not going to give you a good deal,” and here’s why. The French have a vested interest, a very strong vested interest in holding the European Union together. They want to hold the whole thing together. And if they give Britain a good deal, what’s to stop the Netherlands from saying they want the same deal? What’s to stop Belgium from saying they want that deal too? So France has a strong incentive to hold the European Union together. If they let Britain out with all the good things and not the hard things, then everybody else that’s in the European Union’s going to want that same deal too, and the whole thing unravels very quickly.

You need to understand that the point of the eurozone, the point of the EU, was not economic union; it was political union. The point was not economic union. The single currency was simply one step along the road to political union, and if you don’t believe me and you can’t sleep tonight, go read the Maastricht Treaty that set all this up. If you read it, what you will realize is that the ultimate goal of the European Union was political union.

Now, why after World War II would those countries have been interested in political union? Well, two reasons. They wanted to constrain Germany. They wanted to constrain Germany, which they saw as a source of instability in World War I and World War II for sure, but they also wanted to protect themselves on their Eastern Front with a unified area against Russia. So it wasn’t just constraining Germany; it was also protecting themselves from a belligerent Russia on their Eastern Front. So France, which seems to remember history much more so than other nations, basically says, “We’re not going to give you, Great Britain, a good deal because if we give you a good deal, then we have to give everybody else the same deal, and the European Union at that point will unravel very, very quickly.”

So what happens? Well, we’re marching against March 29, and there’re really only two choices: deal or no deal. They either come up with the deal, or they have no deal. Now, I can assure you no deal will be much more chaotic for Britain than it will be for Europe. No deal will be much worse for Great Britain than it would be for the rest of Europe. So any guesses on what’s going to happen? They’re going to come up with a deal. When are they going to do it? March 29, yeah exactly.

It reminds me so much of Y2K. You guys remember Y2K? Does anybody still have bottled water in their basement? A generator? Who bought a generator? Come on, raise your hands. Who was worried the ATMs would run out of money, so they went in and got a little bit of extra cash, and then they thought, Oh my goodness, everybody’s going to know I’ve got the extra cash, and I might be robbed, so I need a firearm? I mean, this is how our minds are working. What happened when the clocks turned? Absolutely nothing. If you take nothing else away from my talk, please take this: If you can see the train coming, chances are you’ll get out of the way.

If you can see the train wreck coming… It’s funny I don’t worry about those things; the things that have a firm deadline that we can see tend to work themselves out because people will cut a deal rather than have a chaotic exit. It’s the train wrecks I don’t see coming; those are the ones that can cause trouble. But if you’ve got a deadline like March 29, they’ll cut a deal. That’s the first thing, though, that’s causing global economic instability, and I think it’s going to be a rocky ride as the negotiations go on. But it’s only going to last five months. I think it’s five months, and it’s got a hard stop to it.

The second thing that is disrupting global capital markets is a little more complicated than Brexit, believe it or not, and it’s the effect that rising interest rates in the U.S. are having on global capital flows. One of the big destabilizers right now of the global economy unfortunately is that the U.S. Federal Reserve is seeking to normalize interest rates. For an economy like ours that’s probably growing at 3 percent, interest rates, particularly long-term interest rates, should probably be closer to 4 percent or 5 percent. I mean, inflation is running 2 percent; the real rate is 3 percent, so there’s 5 percent right there. Interest rates ought to be close to 5 percent to be really normal. So the whole world knows that the U.S. Federal Reserve is going to continue to raise rates until policy looks a little more normal.

Now, for the last decade, real interest rates in the U.S. have been negative. So interest rates have been so very low that if you’re an investor globally looking for yield, where do you go for yield? You don’t go to the U.S. because there isn’t any. You might go to Argentina because you’ve forgotten that they like to default. You might go to Turkey. Maybe you go to global property because global property’s paying 5 percent right. That’s the rate of return that’s better than bonds, so basically savers worldwide who would love to invest in U.S. Treasurys because risk adjusted, that’s where the world wants to put their money, but for those who are on the margins when interest rates are essentially zero in the U.S., they’ve got to look somewhere else for yield. But as interest rates go up in the United States, what happens to capital flows? Well, very slowly, the money on the margin starts to flow back into the United States.

When that happens, over time that’s going to destabilize any country that has a lot of dollar-denominated debt, again Argentina, Turkey, you can just check them off down the list. So this is the second thing that’s destabilizing the globe, and it’s going to continue. I think it probably typically takes five to six months for that to kind of work itself out. It doesn’t appear to be contagious like it was in the 1990s. Remember the Asian currency crisis where there were countries that had perfectly fine balance sheets, but it just was sort of this general contagious sort of thing that happened? That’s not where we are right now.

But there’s a third thing that’s troubling global financial markets, and that is the trade war between the U.S. and China. I would be remiss if I didn’t sort of finish in some way where I started, which is that it is actually true in this instance that politics is really interacting with the global economy to slow things down. So let’s talk a little bit about the trade wars. And to keep it as simple as possible, I want you to imagine that there are really only three possible outcomes. So there’s been a lot written about the trade war. There’s been lots of ink spilled, but there’re essentially only three possible outcomes.

I’m going to talk about those three possible outcomes in terms of the least likely to the most likely. Does that make sense? We’re going to go from least likely to most likely. So what’s the least likely thing to happen? That the U.S. wins the trade war; that’s the least likely thing to happen, and, quite frankly, I personally think this is good news. Because what does winning the trade war mean? What does winning mean?

Winning the trade war I think means two things for the administration. One, it means doing something about intellectual property coercion and outright theft. If you can do something about that, that’d be great, but the WTO is there to generally handle those sorts of things. But the second goal is to actually narrow the goods and services trade deficit, the goods trade deficit. They want to narrow the trade deficit by $200 billion. Now, what effect does that have on the U.S. economy if we actually narrow the trade deficit by $200 billion? That means we’ll be getting $200 billion fewer goods from China.

So if we don’t get those goods from China, then where are we going to get them from? Well, we either have to make them in the U.S. or buy them from India or Vietnam or some other country that we’re not in a trade war with. What does that mean for the prices of everything that we’ve previously been importing from China? They go up, so that’s winning. Winning means the prices of my shoes, my clothes, my home goods go up. OK, that’s not winning to me; that’s not exactly a good outcome, but fortunately, I think it’s the least likely outcome. Why do I think it’s the least likely outcome?

Well, let me just ask you, How long do you think the Chinese government can hold out? I’m just wondering. I mean, I know they’re responsive to their voters. I think they can hold out a little longer. I think they could hold out a little longer than we could. Fortunately, I don’t think that’s the most likely outcome because I think they can hold out longer. What I think is more likely is behind door No. 2 or even door No. 3, and I think door No. 2 and door No. 3 are kind of competing for each other right now. Door No. 2 is that we come to a solution in the next couple of months, and it’s a solution where everybody can declare victory. We save face and nothing changes. Kind of like we did with NAFTA. I mean the new agreement’s no different, but everybody can declare a victory, and we all go home. That’s the least disruptive.

But it’s competing right now with another outcome that I think is kind of equally likely, and that’s that this thing goes on for a really long time, that we just kind of grind it out. What’s the effect of that? Well, it’s actually the same effect of winning. If we stay in this kind of just trade war sort of pattern, then basically what happens to the price of everything? It goes up. And if you don’t believe me, look at the price of washing machines. The first thing that got hit by tariffs were solar panels and washing machines back in January of last year. It took about six months, but the price of washing machines jumped 13 percent in one month, 13 percent in one month.

So basically, what all this means for consumers is that prices go up; inflation goes up. What effect does that have on interest rates? They go up. And does the stock market like higher interest rates? Absolutely not, and I think that that is the signal that they’re sending right now.

Marci Rossell is the former chief economist for CNBC and co-host of Squawk Box.