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Oil Shock=More Fed Shock

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03/07/2011

Atlanta Fed President Dennis Lockhart told a group at that National Association of Business Economics in Arlington, Va. that if the price of oil keeps climbing, the Fed will need to purchase more assets, or QE3.

Of course the men at the Fed don’t believe all of this new liquidity they are creating has anything to do with the prices of oil or food. Oil over a $100 a barrel is an external shock you see. A bolt of lightening out of nowhere. Those crazy kids in Cairo twittering and whatnot.

Ben Bernanke testified last week that inflation will remain tame. And when pressed about oil and food prices, he said “My sense is that the increases we’ve seen so far — while tough for many people — do not yet pose a significant risk to the overall recovery.”

He told the Senate Banking Committee consumers would absorb the increased costs but that these price increases would be “temporary and relatively modest.”

The Fed chair won’t take his foot off the monetary gas, “Until we see a sustained period of stronger job creation.”

“We have all the tools we need” for “a smooth and effective exit at the appropriate time,” Bernanke testified. But if the Atlanta head Fed man’s comments mean anything, Bernanke’s get away car isn’t revved up and idling outside, but instead is up on the rack at the Fed garage, with mechanics adjusting wires and checking fluid levels.

Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply , and author of Walk Away: The Rise and Fall of the Home-Ownership Myth. He received his master's degree in economics from UNLV, studying under both Professor Murray Rothbard and Professor Hans-Hermann Hoppe.

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