Posted by PrestoPundit on 07/30/2008

the weak dollar, and Greenspan’s enormous blunder.

Commodities like oil are priced in dollars. So when the dollar
becomes weak, the dollar price of commodities goes up. And when the
greenback is strong, the dollar price of commodities goes down.

In 2004 Alan Greenspan, Chairman of the Federal Reserve, made a
fateful miscalculation. The maestro, as he was then affectionately
called by an adoring media, miscalculated the strength of the U.S.
economy. He thought it weak. He was fearful that prices would collapse
in America as they did in Japan during the 1990s and the early part of
this decade. So to goose the economy, Greenspan created excessive
amounts of money. Interest rates were kept artificially low.

the economy was not weak. In fact, between 2003 and the summer of 2007,
the growth alone of the U.S. economy exceeded the entire size of the
Chinese economy. In other words, we grew the equivalent of the economy
of China in little more than four years.

Yet Greenspan made sure the Fed’s printing presses worked overtime.
Thus for the first time since the 1970s and early 1980s, we are faced
with a serious inflation problem. Thanks to Greenspan’s blunder, all
commodities shot up — oil, cooper, lumber, steel, even the price of

While Greenspan begat the inflationary blunder, Ben
Bernanke, the maestro’s successor, perpetuated it. In 2003 the price of
oil was around $25 a barrel. A year ago when the credit crisis hit, oil
was around $70. Then Bernanke ginned up the printing presses again,
this time to deal with the fallout of the busts of sub prime mortgages
and other exotic financial instruments and the threats they posed to
the banking system. The U.S. economy has crawled to a virtual halt
since August 2007 and yet the price of oil has almost doubled. That’s
not supply and demand, that’s classic inflation.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: