Yesterday oil had its largest one-day gain on record. The oil contract was up a total of $6.08 per barrel including after-hours trading to $128.56 per barrel -- the day before Ben S. Bernanke spoke at his Harvard alma mater to graduating seniors.
Incredibly, seemingly oblivious to homes freezing in Maine and Dakota winters, truckers losing their rigs, airlines cutting their workforces by the thousands and severely cutting back their service, family budgets being ripped apart by the price of gas, small businesses
unable to meet their payrolls, from his aerie at the Federal Reserve, not long from his years in academe, Mr. Bernanke sought to instruct us along with his Harvard graduating class audience.
As if out of touch with the realities of peoples everyday lives, Bernanke dismissed the idea that rising oil prices pose the same kind of threat to the economy today than the wage-price spiral of the 1970s. There, feel better now? To carry his looney tunes reasoning one step further he underlined his thesis that though inflation is higher today than he would like he philosophized all's good in the world because we do not now have "long lines at gasoline stations."
By Mr, Bernanke's standards that makes it OK for the oil industry, producers both here and abroad, to transfer literally trillions from the pockets of consumers here and throughout the world into their coffers, in effect, giving official sanction and blessing to the rapacious rise in the price of oil and energy. In effect, removing any moral suasion to either restrain prices, oil company profits, have OPEC increase production to pressure prices down, or to effectively use the bully pulpit of government to restrain consumption.
Knowing how Mr. Bernanke feels, the market took flight and the result was the largest one-day jump in oil prices ever. Yes, one can cite ancillary reasons but basically Bernanke signaled to the markets and the world at large that high prices were not an issue for this government nor would they be as oil prices moved higher still.
In July, 2007 this writer posted, "Federal Reserve Chairman Bernanke Shills For The Oil Industry." Given Mr. Bernanke's oratory at Harvard, it is more pertinent today than when it was written. And please don't be shocked at the price of oil cited at the time. I am taking the liberty of repeating it below:
Posted July 20, 2007
That the administration takes its lead from the oil barons is nothing new. That too many in our Congress are at the beck and call of the oil industry's "K Street" lobbyists is a sad given. But now we have an example of the oil industry's oozing influence engulfing the one office of government that has always embodied impartiality and integrity.
A question was raised by Sen. Robert Menendez (D. NJ.) during Federal Reserve Chairman's Ben Bernanke's testimony before Congress over the past two days. Sen. Menendez asked a somewhat rhetorical question, "Who is this economy working for?" A question that took Mr. Bernanke by surprise. The question itself was not answered directly but let me give it a try.
Given Mr. Bernanke's prepared statements and responses to questions during the course of the hearings, one might rightfully conclude that the answer to "Who is the economy working for?" is, according to Mr. Bernanke, the oil industry and those who share its interests both here and abroad.
In general summary, Mr. Bernanke's emphasis in his prepared statements and subsequent comments, was that the Federal Reserves' focus is on "core inflation levels". That is to say inflation excluding food and energy. Mr. Bernanke volunteered that "core inflation" was a better indicator of inflation trends. That he expected energy inflation to flatten out and not to have much impact on the inflation scenario in the months, possibly years ahead.
After those comments they must have been popping champagne corks at Oil Headquarters Central, not only here but in Riyadh and Moscow. Earlier last week, on CNBC, Mr. T. Boone Pickens, the oil industry's bad news ambassador to the public at large said, on good authority no doubt, the Saudis and the Russians want ever higher prices and will push them ever higher, until there is some forceful push back or the world finds itself at the edge of economic crisis. He continued that he expects prices to reach well into the $80/bbl by the time he hits 80 early next year.
Mr. Bernanke made no mention of the fact that oil prices, the single most important factor of the energy equation, have increased by 50% since President Bush's State of the Union Address in January. How incredibly convenient to oil interests that a senior and otherwise respected government functionary would be running interference for them, dismissing the significance of grievous energy inflation, and even more ominously giving credence and validation to current price levels. Never mentioning that these price levels were arrived at in large measure as result of cartel manipulation.
Here we have an example of our oil influenced government, forgoing its responsibility to examine and to instruct the public on how oil prices evolve. Instead the Federal Reserve extends cover to a large and manipulated segment of our economy, designating this gorilla on the inflation horizon as a lesser indicator than say, the cost of shirts and ties. After all, as Bernanke instructed the National Bureau of Economic Research earlier this month, "Inflation is less responsive than it used to be to changes in oil prices ... ". Translation: OPEC and your brothers in the oil patch, just continue what you're doing-we'll cover for you.
If inflation has been held at reasonable levels it is because of the growing and extraordinary productivity of both labor and technology, whose efficiencies have protected us from the limitless gluttony of the oil industry. The cover-up exhibited by Mr. Bernanke's shameful performance (also see post "Bernanke, Chairman of the "Oil" Reserve, Carrying Water for OPEC" 6/16/06) targets the very heart of the Federal Reserve's integrity.