By JLP | April 25, 2011
I was going through my email and found a link to this interesting interview with Peter Schiff, author of one of my favorite books from last year, How an Economy Grows and Why It Crashes*. I thought this question and answer was interesting:
Question: So, with a more thoughtful and sober monetary policy from the central banks like the Fed and others, you’re suggesting that maybe oil demand wouldn’t be as high?
Schiff: Well, if you went to an auction and everybody had $100, nothing would sell for more than $100 because nobody would have more than $100. If you gave everybody $1,000 and you auctioned off the same merchandise, it would sell for more money because the people that are bidding have more money to bid.
And that’s what’s happening. All the central banks are printing money, and now that money is there, that money is chasing oil. They’re not pumping as much oil as the central banks are printing money. The supply of money is growing much faster than the supply of oil, so therefore the price of oil has to rise. That’s what’s going on.
The ironic thing about it is the Federal Reserve is likely to respond to higher oil prices by printing even more money, claiming that the higher oil prices will slow the economy. And they think that what they need to do is stimulate to offset that. And of course, by doing that, that just means oil prices will rise even faster, because then there will be even more money. The process will continue, on and on.
There’s no mention in the interview of speculation. Interesting.