How the Rising Oil Price Might Affect the US Economy

by Bill Bonner.

We don’t especially like numbers here at The Daily Reckoning. You can’t trust them. But we follow a few of them anyway. Like these numbers…

107.01

12.70

The first number above is for the Dow. The second is for gold. They show us what happened in yesterday’s trading. And yesterday, the first number was negative. The second was positive.

Not that there aren’t a lot more interesting, provocative numbers around. But we only follow the big picture here. And those two numbers tell us most of what we need to know.

At least, they give us a good starting point.

The Dow number is going down because investors are worried. That’s why the gold number is going up too.

What if these Cereal Revolutions get out of hand? What if they spread to Saudi Arabia? What if the price of oil keeps going up?

“Gasoline at $4 a gallon?” asked a headline yesterday.

What would gasoline at $4 a gallon do to the US economy? This is another of those pieces of the puzzle that we mentioned yesterday. Ben Bernanke, who would probably make a fine high school math teacher, knows nothing about economics. He thinks all he has to do is to add more money and the whole “recovery” picture will be complete. Investors will see their stocks go up. Employers will hire. Shoppers will shop. Bakers will bake more. Shoeshine boys will start slapping the leather. Wheelwrights will…well, never mind.

But then, the puzzle pieces change shape. He pumps in money. The price of oil goes up. And food. And the Arabs, who depend heavily on grain imports, get themselves worked up. And then the price of oil goes up more. And stocks begin to fall. And US consumers pay more for gasoline…

…and suddenly, the picture is not at all what the Fed chairman had hoped for.

But wait. It gets worse. Look at a third number: 220. It’s what the big Japanese securities firm, Nomura, thinks the price of oil could reach, thanks to the Cereal Revolutions.

And maybe they’re right. Gaddafi is no Mubarak, say the papers. When he says he’ll fight…he could mean it.

And others are getting ready for a fight too. Saudi Arabia is trying to head off trouble. And reports tell us that China is worried and increasing its security measures.

And what about France? And the USA?

Has your editor lost his mind? Not completely.

“I’ll give you a prediction,” said a smart French woman with whom we dined last night. “What’s happening in North Africa will soon be happening in France.”

“And if you look at how wealth is distributed in the US,” said a companion, “it is really amazing. Something like 95% of the population lives below what we would consider the poverty level here in Europe. I don’t know how they live. It’s only the extremely high earnings of the other 5% that makes the average seem normal. And almost all the new wealth created in the last 10 years has gone to a tiny percentage of the population.

“You and I may know that Ben Bernanke and US monetary policy are largely responsible for the wealth that has been concentrated in the hands of the rich. But the man on the street has no idea. He just thinks it is wrong. And unfair. What is really amazing is that he hasn’t already begun a revolution…”

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Green Chiles

    Bill, your companion must be an idiot. 95%, really? I think your friend needs to get out of Paris and visit the suburbs more often. Or southern italy, portugal, greece, hungary, poland, all of which, last time I checked, were still in Europe.

    Oh yeah, and of course we can expect rioting in oil rich countries because…the price of oil is headed up? Say what? Clearly something else is at work.

  • John

    Yea, I find that 95% figure to be a bit suspect also. If it were true you’d be seeing a massive wave of immigration returning back to Europe from the U.S. Last time I checked that ain’t happenin.

  • kamran

    something else is at work is the value of dollar looking like is going to head further south in the near future giving rise to commodity prices. the revolutions has just accelarated this process.

    it won’t get better either because then the demand and supply keeps prices high in the long run.

    gold is good but oil doesn’t sound like a bad investment either.

  • Gustavo

    “Something like 95% of the population lives below what we would consider the poverty level here in Europe.”

    See – yet another example: Europeans have a sick, warped fixation on America. European media is an echo-chamber of anti-Americanism. They have entire T.V. shows based on nothing but demonstrating that Americans are idiots. Such a show could have no corollary in America. We’d be bored to death by some kind of show slamming French people as it’s raison d’etre for example. It requires a real psychosis to fixate on such a thing to that extent.

    God knows, we have serious, serious systemic problems here – but comments like those of your French friend reveal more about their mass inferiority complex than it does about America. Those figures are factually untrue – and obviously so.

    America is still consistently rated in the top 10 of happiest countries and best countries in which to live – although certainly this could soon change.

    It’s kind of scary to see the pure HATE of the rest of the Western world for America. What good will come of it? I’d say Canada and the U.K. are standouts in this regard. They are absolutely obssessed with what we Americans think of them and relish any opportunity to slag the U.S. whereas American’s are by and large very friendly and would prefer to get along with everyone – neo-con, zionist-manufactured hate for Arabs excepting, of course.

    Let’s all stop the hate, eh?

  • deepmirrorprufluck

    i’m czeching with my constutitians regarding the Const. mandate for the rev. maybe in another year, ok? as long as ireland goes first, we’re safe!

  • DRUNK AND DISORDERLY

    Money polarizes in a capitalistic economy. If the Powerz or Power Elite (really, why don’t we cut the euphemisms and call them what they really are? Aristocracy…) don’t back off the oppression in time, they can find themselves the object of mob attention.

    No society is immune from this equalizing force.

  • Bruce Walker

    $220 a barrel is about right. And gold selling for 20 times that per ounce.

    But the really amazing thing about the commodity rally in general, is that it can pop in a number of different ways.

    The US government unilaterally shutting down all the ethanol plants would plunge the CRB index nearly 10% in a single day.

    Won’t solve anything, of course, but it will buy time. Perhaps a few months.

  • phelps

    The revolution will begin soon enough. All that is needed now is the trigger event. What will that be? I don’t know.

    America’s first civil war began at Ft. Sumter, S.C. The second may begin in Madison, WI? This time the divisions will not be regional, but idealogical. This will pit neighbor against neighbor. No locale will be immune.

    I hope I’m wrong, but doesn’t repeat itself?

  • phelps

    Last sentence should be “doesn’t history repeat itself”. Haven’t had enough coffee yet.

  • CT

    “The Dow number is going down because investors are worried. That’s why the gold number is going up too.” Worry, worry, scurry and hurry. Thats the great part of being an investor you get to worry a lot. Its addictive.

  • Quixote2

    Well, my daughter returned from a visit to Paris. Coffee $10 (6 euros) per cup. Meals were taken in the hotel room; local grocery for a some bread and cheese with a cheap bottle of wine.

    The rich American could not afford to eat at the local fast food places.

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