Ryan Swift highlights the often overlooked, yet strikingly poignant, data that stares all Americans in the face. Below is a visual prepared by Mr. Swift showing that over the past year, the dollar’s decline has inversely matched rising oil prices. This is not a coincidence and the data actually make sense when one considers that our economy requires both a currency and oil. While currency serves to circulate goods throughout the economy, oil facilitates their production. It makes sense then that the two would be inversely related. The more goods we produce, the more oil is required and the higher its cost. Likewise, a higher quantity of goods require more currency to move them. The problem, however, lies in the fact that consumer demand is still very low while the Fed is printing money in record volumes. As more dollars flood the economy, the value of each will naturally fall because production has not yet increased sufficiently.
What this means is a double-punch to the American pocket-book. As oil climbs, prices for all other goods rise as transportation and production costs increase. In other words, higher prices for crude is akin to inflationary pressures all its own. Add the Fed’s so-called “needed” QE2 (and talk of QE3) and one sees the printing press running at overtime to devalue the dollar further. The overall result is a lag in production and a delayed recovery for the economy as a whole. As oil surpassed $113 a barrel on Friday, Time reported a fall in annualized GDP growth from 3.1% in the fourth quarter 2010 to a meager 1.8% in the first quarter this year. Moreover, rising oil prices are likely a result of unrest in the Middle East and OPEC’s mysterious tendency to cut supply while demand clearly indicates the opposite response. This last factor, Swift points out specifically along with Obama’s declaratory announcement to go after speculators responsible for inflationary pressures. What Obama will not do – and what the mainstream media still refuses to recognize – is to reign in the Federal Reserve System’s QE policies that are responsible for nearly $2 trillion dollars of inflationary pressures. So once again, we see the mainstream media attacking the usual foe – the market itself – thereby initiating a call for more government intervention. One may wonder then, at what point will government meddling in the economy effectively push us beyond the point of no return. Or are we already there? M9EZ497NU9QH
- Newsflash! Oil is Inversely Related to the Dollar (swifteconomics.com)
- Oil Back Above to $113 on Weaker Dollar (time.com)
- Inflation News: Federal Reserve’s QE Policies Cause Rising Food and Oil Prices (laissezfairelinks.wordpress.com)