Wednesday, January 4, 2012

Oil Above $103 per Barrel

Oil is a very important factor when it comes to real core price inflation.

As I have stated many times, oil is a key factor for consumers and also in the capital goods sector. This is important to understand in terms of Austrian business cycle theory, since ABCT teaches that central bank money printing directs money to the capital goods sector.

When the money falls into the hands of the capital goods sector, those operators then start bidding oil (and gasoline) away from consumer uses. It's a real bidding war. An operator in the capital goods sector is not going to be bidding directly from consumers for, say, cement, but he is going to be doing so for oil. That's why oil tends to lead price inflation.

In the EPJ Daily Alert, I have been warning about an upward spike in oil prices, Bernanke has been printing too much money for it not to happen, especially since the eurozone has somewhat stabilized and thus, the demand to hold cash (especially dollars) will shrink.

The cover story may be heated words between the U.S. and Iran, but the money has to be there to bid up the prices, and Bernanke is sure printing that.

Eventually, with capital goods operators bidding oil away from the consumer sector, it will mean much higher gasoline prices.

1 comment:

  1. Our Owners are propping up the price of oil since it is the easiest way to cause high price inflation that will reduce the national debt ratios globally. What the Slavemasters don't steal in taxes, they will steal using inflation.