There are starting to be aggressive moves now by foreign oil-producing countries to try to curb oil production in order to give a boost to the spot price. The rate of descent in the price of a barrel of oil has been stronger than its upward move and, although it takes time for the price at the pump to drop, this price weakness has been a real help to the economy.
It’s kind of like an across-the-board tax cut for everyone and it’s going to help. I’m really surprised at the speed with which prices have moved in most commodities. Not to be unnoticed has been the weakness in precious metals, particularly gold. I suppose we can only think of the financial crisis as being so bad that the only safe haven in the world was U.S. Treasuries.
But, with this severe price action in commodity prices comes the reality that the economic policies now in place are laying the groundwork for significant inflation over the next decade. Deficit spending and enormous monetary stimulation can create serious problems in the future.
There’s already been a lot of new inflation in the economy. You can even read about in third-quarter earnings reports. Most companies are saying that their costs are rising and their only saving grace has been the opportunity to pass on increased raw material costs to their end customers.
The cost of money, otherwise known as interest rates, also experiences periods similar to the business cycle. I think we have to be very cautious going forward that we don’t end up killing the very economy that we’re now trying to jump start.
At the end of the day, U.S. Treasuries are the world’s safe haven instrument in a banking crisis. But, in an inflationary crisis, the only thing in the world that matters is the amount of debt you have and the price of gold.