Monetary Policy

Oil and commodities aren’t rising, rather the value of the dollar is in sharp decline. Money is a veil, and the real price of oil isn’t  rising much at all.

Indeed, while the price of oil from 1975-79 increased 43 percent in dollar terms, the international global story was a great deal different. Over that same timeframe the price of oil in West German marks and Japanese yen rose 1% and 7% percent respectively. In Swiss francs the oil price actually fell 7%.

What economists and journalists to this day term “oil shocks” were nothing of the sort. For countries that maintained the value of their currencies, oil for them didn’t spike in the least.

OPEC of course explained the dollar-driven “oil shocks” to the U.S. political class in a communiqué sent out five weeks after President Nixon severed the dollar’s link to gold. With the dollar lacking a gold definition, it went into freefall, and oil, per OPEC’s warning, spiked- “There the ‘energy crisis’ was born.”

Happily for U.S. consumers, investors and wage-earners, dollar policy in favor of strength improved greatly in the Reagan ‘80s and Clinton ‘90s. And with the dollar rising over those two decades amid gold’s logical collapse, so too did all commodities decline, including oil. The price of the latter fell to $10/barrel in 1998.

Far from a world running out of resources, the price of oil and most other commodities didn’t change much at all in the 1970s; rather the dollar’s value plummeted.

Once the dollar rose, and gold fell in ‘80s and ‘90s, so did oil. The notion of a “finite world”  is easily discredited once dollar policy improved.

Since the middle of 2010 the Australian dollar has risen 27% against our wilting greenback. During that time oil has risen 33% in dollars against a fairly pedestrian 6% increase in the cost of crude measured in Aussie dollars. The recent commodity spike that Krugman deems global has in fact confined itself to the countries that have mimicked our devaluation.

 When we devalue the dollar, history shows that it’s frequently a global event (thus explaining the global nature of the housing boom amid the Bush Treasury’s dollar debasement in the decade just passed) as countries naively weaken in concert with us on the false supposition that this helps exports.

Since 2001 gold has risen over 400% amid the dollar’s collapse, and as foreign central banks once again mimic U.S. Treasury policy to varying degrees, gold has spiked in all currencies on the way to a global “commodity boom” that has served as evidence of nothing more than global currency weakness. “