Post Traumatic Oil Price Disorder

You know you live in a decadent country when basic facts of life are greeted with jeers and calls for excommunication from the realm like Paul Krugman is getting pilloried for his recent NYT piece on oil price inflation. Here’s the deal folks, oil is priced in dollars and to bail out the U.S. banking system America’s central bank is flooding the market with record amounts of dollars. What happens when too many dollars chase too few barrels of oil? Well, believe it or not, the price of oil goes up. Now this is not a political statement. This is a statement of fact. Speculators in the oil market (and the agriculture market) are a mere subset of the irresponsible credit expansion crazy people who run the Fed. And yes, the world has hit ‘peak oil.’ All three of the biggest oil fields in the world are now in decline. Demand for oil is rising toward 100mn. barrels a day, while production has peaked at around 86 mn. barrels a day. Too much money chasing too few barrels means the price goes up. And the Chinese are happy to pay. Seems simple enough…

But does this stop America’s pundits from trying to avoid this economic reality, that oil is probably going to $160 in the near term and $200 in the medium term? No, they love to pretend that economics has nothing to do with the price of oil going up and that it’s the fault of speculators and OPEC. You see the same myopic, “What me, worry?” Alfred E. Newman thinking on display in almost every facet of American political and economic life.

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