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Posts Tagged ‘oil’

By flooding the financial system with money, Federal Reserve Chairman Ben S. Bernanke is seemingly betting that the country’s highest jobless rate in 25 years, combined with the most idle factory capacity on record, will hold down inflation, and it’s textbook Keynesian economics.

If Bernanke’s gamble pays off, then he and the whole Obama administration will be viewed as saviors, but if instead, Milton Friedman’s theories prove correct, and the country lurches from the present financial crisis into rampant inflation, then they will not be so kindly remembered.

Several statements that have recently been made by experts suggest that Bernanke is batting on a very sticky wicket, and many of them have stated on record, their belief that reflation is still in its early stages, and they have pointed out that there are already signs of growing inflation.

John Brynjolfsson, who is the chief investment officer of the hedge fund Armored Wolf, said in a recent TV interview, “We’ve got at least nine innings of reflation ahead of us, ultimately ending with probably double-digit inflation”.

Allan Meltzer who is the Fed historian, and a professor of political economy at Carnegie Mellon University in Pittsburgh says, “If history is any guide, then the effort will end in tears and inflation will get higher than it was in the 1970s”.

Consumer prices rose at a year-over-year rate of 13.3% at the end of the ‘70s, mainly because political pressure from Richard Nixon’s White House prevented Chairman Arthur Burns from removing liquidity as quickly as was then necessary.

The signs that are said to be pointing strongly to inflation are;

• A swelling Fed balance sheet that has climbed $1.2 trillion in the past year to $2.09 trillion.

• M2, which is a broad measure of the money supply that includes checking accounts and money-market mutual funds, rose in the last six months at an annual rate of 14% which is up from 6.3% a during the last decade.

• Copper is now at a five-month high and platinum reached a six-month peak on April 9th and there are those that expect oil prices to double from the present price of $52 a barrel now.

Moreover, Ken Mayland, who is the president of ClearView Economics LLC says he sees, “oil prices increasing to “$80, $90, $100 before the end of next year. All that money is going to find a home”.

There are hopes and intentions and then there are the carved in stone realities that need to be overcome in order to achieve them.

Like all politicians and perhaps the ones that reach the highest echelons in particular, Obama most likely hopes to leave a lasting and favorable legacy at the end of his four or eight year tenure.

He will inherit amongst other things the worst financial crisis since the thirties, an Iran that is close to being able to create nuclear weapons, wars in Iraq and Iran, dwindling oil supplies, rising unemployment, climate change issues and the probability that Israel will elect a right wing leader in February 2009, and making things even more difficult are the sky high expectations of the American people and much of the world.

A possible upside to the seemingly endless list of crises is perhaps the need for bipartisan action that will be needed to help solve some of them and this may buy Obama and his administration a little time, but not much because the democrats in congress will be eager to act after waiting eight years in the wings. The most likely things to get pushed through at an early stage are the ‘State Children’s Health Insurance Program’ which has considerable Republican support, embryonic-stem-cell research, a bill that that would overturn a limited Supreme Court decision on women’s ability to sue for wage discrimination, and some cross-party cooperation can also be expected in the area of the financial crisis.

Clinton’s second chief of staff, Leon Panetta issued a statement saying, “Not in my lifetime has a president confronted such a series of very serious crises that are facing the country. He’s also going to have to appeal to the public’s willingness to sacrifice in order to rally them around some of the tough decisions he is going to have to make” and Mr. Obama who understands this only too well, said on Tuesday night, “The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America — I have never been more hopeful than I am tonight that we will get there. I promise you: We as a people will get there”.