Ben Bernanke has come out with a now, now, there, there on the falling dollar:
The Federal Reserve is monitoring currency markets “closely” and will conduct policy in a way that will “help ensure that the dollar is strong”, Ben Bernanke said on Monday in rare comments on the US currency.
The Fed chairman also indicated that the US central bank would not ignore the impact of rising commodity prices when evaluating the outlook for inflation. He said he would not rule out using interest rates to combat new asset price bubbles, even though he did not see obvious mispricing in the US at this stage.
Hmmmm, no obvious mispricing. Does that include the oil speculative bubble of 2008?
Meanwhile Gold is through the roof, in part due to the dollar decoupling.
Which leads to this exceptional post on Econbrowser. James Hamilton has an analysis of commodity inflation and notes that commodities have risen an average of 37% in 2009. While gold is getting all of the attention, lead has risen 81.9%!
Below is a graph showing not a correlation to dollar devaluation, but a correlation of other commodities prices to....oil.
Hamilton gives the three explanations on why commodities are rising:
- dollar devaluation
- resurging economic growth outside the U.S.
- commodities becoming an investment class (speculation)
Since the start of this year oil prices have increased five times as much as the dollar price of a euro; see also Steve Gordon's graphs. While the depreciation of the dollar is part of the story, most of the explanation must be found elsewhere.
The evidence is strong that cause #3, speculation is causing a commodities bubble. Hamilton concludes with:
Policy-makers in the Federal Reserve have traditionally thought of inflation as a broad movement in all wages and prices, which to some extent is under their control, and viewed changes in relative commodity prices as outside their control. I believe that this is not the correct understanding of the current situation. Concerns about inflation, particularly on the part of foreign dollar-holders, are likely to show up first in the relative prices of internationally traded commodities. Insofar as these relative price changes can be destabilizing in themselves, it cannot be wise for U.S. policy-makers to ignore them.
Meanwhile you might remember this post, The Enron Loophole overviewing testimony on oil speculation. (Ah, doesn't $4 dollar gas seem like a long time ago?)
Which leads me to this post, The Global Oil Scam: 50 Times Bigger than Madoff:
$2.5 Trillion - That’s the size of the global oil scam.
It’s a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in "Madoff Units" ($50Bn rip-offs). That’s right - $2.5Tn is 50 TIMES the amount of money that Bernie Madoff scammed from investors in his lifetime, yet it is also LESS than the MONTHLY EXCESS price the global population is being manipulated into paying for a barrel of oil.
While all of the news is Gold, Oil was up 3% in just one day.
As we can see, in an indirect way, oil is rearing it's ugly head on our economy. Commodities speculation is way beyond Bernanke, interest rates and the dollar. In fact we need to curtail these speculators who distort markets on critical commodities vital to the national interest and economy.