April 22, 2011

Oil: We're Being Had Again

Ed Wallace:

No matter how many of his Fed presidents claim they are not to blame for the high price of oil, the real problem starts with Ben Bernanke. The fact is that when you flood the market with far too much liquidity and at virtually no interest, funny things happen in commodities and equities. It was true in the 1920s, it was true in the last decade, and it's still true today.

Richard Fisher, president of the Dallas Federal Reserve, spoke in Germany in late March. Reuters quoted him as saying, "We are seeing speculative activity that may be exacerbating price rises in commodities such as oil." He added that he was seeing the signs of the same speculative trading that fueled the first financial meltdown reappearing.
Here Fisher is in good company. Kansas City Fed President Thomas Hoening, who has been a vocal critic of the current Fed policy of zero interest and high liquidity, has suggested that markets don't function correctly under those circumstances. And David Stockman, Ronald Reagan's Budget Director, recently wrote a scathing article for MarketWatch, titled "Federal Reserve's Path of Destruction," in which he criticizes current Fed policy even more pointedly. Stockman wrote, "This destruction is, namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households ... and the next round of bursting bubbles building up among the risk asset classes."

Posted by jez at April 22, 2011 9:53 PM | Subscribe to this site via RSS:
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