Schiff: The Fed is Pushing Oil Prices Higher

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.

*Affiliate Link

6 responses to Schiff: The Fed is Pushing Oil Prices Higher

  1. Interesting perspective. I enjoy the insights offered by Peter Schiff, not only for oil but also for gold and silver markets.

    Beyond the money supply argument there’s a growing consensus that Saudi Arabia simply does not have any excess capacity. I suppoe we’ll see very soon as Chinese, Indian, Russian, & Brazillian domestic demand takes any excess available the market can supply now.

    We live in interesting times!

  2. JLP said: “There’s no mention in the interview of speculation.”

    Shiff said: “All the central banks are printing money, and now that money is there, that money is chasing oil.”

    If all that excess money isn’t chasing every thing else (aside from Gold and Oil), then it must be speculation, right?

  3. Possibly, BG. I meant it wasn’t mentioned specifically. I like Schiff. His books are pretty good. I really liked the one I mentioned in the article. That said, he’s not without controversy: Wikipedia: Peter Schiff (read the section titled “Investment Advice.”

  4. Thanks for the pointer. Seems like the criticisms are from people who actually followed his calls and lost money, which of course is dumb to do blindly.

    Peter is a bear, and bears always have the trouble of timing — to make money as a bear, you have to predict that stocks/dollar, etc are going to go down, and also TIME it right to make a profitable trade.

    Bulls and long traders, don’t have to worry about timing…

  5. “All the central banks are printing money, and now that money is there, that money is chasing oil.”

    I think if this argument held water, we would be seeing prices rise at similar rates on all products after adjusting for scarcity. Money has no predilection toward oil.

  6. Oil just dropped 8.6% today, and Silver dropped 12%. Stocks on the other hand dropped 1%, and the US Dollar got ‘stronger’ (US$Index is up 1.5%).

    I think that is proof of speculation in the commodities markets. Hopefully no-one followed Schiff’s call…