Following today's margin induced collapse in commodities we can't help but wonder if the Chairman's interpretation of crude prices as being merely an indication of the "economist's basic mantra of supply and demand" was wrong, as pretty much all statements by Fed critters, or if he was simply lying.
Now, our --- our interpretation of the increase in gas prices is the economist's basic mantra of supply and demand. On the one hand, we have a rapidly growing global economy, emerging market economies are growing very quickly, and their demand for commodities, including oil, is very, very strong.
Indeed, essentially all of the increase in the demand for oil in the last couple years, in the last decade has come from emerging market economies. In the United States, our demand for oil, our imports have actually been going down over time.
So the demand is coming from a growing economy, where we've seen about a 25 percent increase in emerging market output in the last - in the last - since before the crisis.
And on the supply side, as everybody knows who watches television, we've seen disruptions in the Middle East and North Africa, in Libya and in other places that have constrained supply, supply has not been made up, and that, in turn, has driven gas prices up quite significantly.
Odd, so it is speculators on the way down, and natural supply and demand on the way up. Or maybe the developed world announced today it was not going to use crude any more - a press release which we admit we must have missed.
And to follow up:
There's not much the Federal Reserve can do about gas prices, per se, at least not without derailing growth entirely, which is certainly not - not the right way to go. After all, the Fed can't create more oil. We don't control the growth rates of emerging market economies.
Ah yes, but the Fed can certainly make it clear to the CME to destroy "speculation" in massively cross-linked asset classes. Is that a reasonable assessment of Bernanke's words?
Of course, Bernanke did make it clear that liquidity will keep coming for an extended amount of time, should the economy not pick up, the variable that pushed gold to an all time high. Luckily, that was a week ago, and everyone has forgotten all about that now.