Notice how in the lead-up to the election there seems to be slight improvement in the unemployment rate. But we're also starting to see the "ragged" forms of inflation to which Steve Horwitz refers in the video. Let's start with the price of gas. Not all of it, but a lot of it, is a result of inflation. Here's why:
[T]he dollar has been trending downward against a market basket of world currencies for at last 18 months and has experienced a free-fall since ?the Bernank?? announced ?quantitative easing 2? (QE2) back in November. (Here are the data).
So what does all this have to do with the price of oil and gasoline? A lot, actually. Oil is bought and sold on world markets using the dollar. The greenback is the official currency of oil trading. We typically think of the prices of crude oil and therefore gasoline as being the result of direct changes in the supply and demand for oil. If the supply increases (or demand falls): for example if OPEC increases its production quotas, we expect the price of oil to decline. If the supply falls (or demand increases), we expect the price of oil to rise.
So when we turn on the news or listen to pundits talking about the price of gasoline, we see finger pointing at particular demons whose activities directly impact the supply and demand for oil, i.e., OPEC, oil companies, refiners, speculators, etc. The list of villains goes on. Unfortunately, most of these pundits are ignoring the other side of the oil-for-dollars trade. Just as an increase in the quantity of oil decreases the value (i.e. price) of oil, an increase in the quantity of dollars decreases the value of dollars. On international oil markets, this means more dollars are required to purchase the same amount of oil. Sellers of oil will demand more dollars for each barrel because the dollars they are receiving buy them less in terms of other goods and services.
As the Fed pursues a policy of keeping the value of the dollar low relative to other currencies, it's driving up the price of oil. So you have Ben Bernanke to thank for some of the sticker shock at the Chevron. If President Obama is truly concerned about reducing oil prices [...] he should not join in pointing fingers at speculators or big oil companies. Instead, he should take a look at the policies of his own Fed chairman, Ben Bernanke.
Despite the slight improvement in unemployment (which may simply people giving up on the prospect of working), things are likely to get worse before they truly get better. Today's growth may be little more than bubblenomics. And todays gas prices are a symptom of it.
Accept it, each year the value of money increases as their price changes. That's the essence of inflation, value goes higher and higher each year.
Posted by: plumbing | 03/10/2012 at 10:19 PM