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Why Bernanke refuses to let oil prices fall
Pinnacle Digest writes: Clif Droke is a strong believer in the 60-year/120-year cycle scheduled to bottom in 2014. The bottom of this cycle is expected to bring a heavy bout of deflation. However, according to this theory, the last phase before the deflationary bottom begins is asset price inflation (ironically). It makes complete sense that it would bring on inflation however, as Bernanke has implemented QE3 to fend of deflation. Without Fed intervention, we’d likely already be in a strong deflationary environment. With this latest round of QE, inflation will likely hit our economy, but it won't last.
Droke explains in his latest article that deflation has been threatening the global economy since the late 90’s. It started becoming a serious threat during the Asian Currency Crisis, which was then followed by the Russian ruble crisis. Both currency crises, combined in a very short period of time, nearly collapsed the global commodities market in 1998. And as Clif Droke explains “It was then that the first signs of deflation were felt as the 30-year cycle peak approached by the end of the ‘90s.”
He goes on to state that “By the year 2000, the benign dis-inflation of the ‘80s and ‘90s was giving way to the deflationary portion of the final 15 years of the 60-year cycle. By the time the 30-year cycle peaked in 2000, it had become obvious to world leaders that a coordinated loose money policy was needed to prop up the price of oil. By the beginning of 1999 the price of crude oil had fallen to a low of $10/barrel.”
Oil is considered to be a currency by many and the backbone of the global economy. When oil prices collapsed in the 90’s, it was viewed as a gift to consumers. However, it was bad news for the global economy and petroleum based economies. No country was hit harder than Russia. “To keep Russia afloat financially it was necessary to artificially boost oil prices beginning in the 2000s, when deflation first became a problem. This involved the use of central bank monetary policy to increase the liquidity available to speculators and hedge funds, which allowed them to push up oil prices through their speculative operations. The commodity exchanges complied to make it even easier for the large speculators to work their magic, and oil prices began a long-term rise which has continued until now” stated Clif Droke.
Droke explains why the Fed has incentive to keep oil prices high (and hasn’t let it drop below $70 per barrel in three years). As stated, it is a gauge of the health for the global economy. While falling oil prices may give US consumers a break at the pump, they signal the potential for an economic deflationary collapse - which is believed by Droke to be coming in 2014.
Click here to read Clif Droke’s revealing article on this interesting subject.