Despite record passenger traffic, airlines are bleeding cash and going bankrupt. Food riots have cropped up around the world, Canada is paying farmers to kill pigs because feed costs too much, and rice, it seems, is in very short supply.
While ethanol subsidies have created havoc, they don't explain everything – like huge increases in precious metals prices, the sharp decline in the value of the dollar, or record-high fuel prices.
What's missing in most analysis is the impact of inflationary monetary policy. Since 2001, and especially since September 2007 – when the Fed started cutting rates in response to credit market issues – excessively easy monetary policy has driven oil and other commodity prices through the roof.
The good news is we've been here before, and we know – well, at least 1980s Fed Chairman Paul Volcker knows – how to get out of this mess. Loose money in the 1960s and 1970s drove up the price of everything. A barrel of oil, which sold for $2.92 in 1965, rose to $40 in 1980. Most people believed that rising commodity prices indicated that the world was running out of resources. The Club of Rome predicted global ruin, and then President Jimmy Carter said that "peak oil" was right around the corner.
Oklahoma-based Penn Square Bank handed out oil loans freely, and sold off pieces of its loans in packages called "participations." Seafirst Bank in Seattle and Continental Bank in Chicago were two good customers. These banks thought oil prices would remain elevated and paid a huge price for their mistake.
Wall St. Journal
News
Discussions
Resources
Members
Despite record passenger traffic, airlines are bleeding cash and going bankrupt. Food riots have cropped up around the world, Canada is paying farmers to kill pigs because feed costs too much, and rice, it seems, is in very short supply.
