Dr. Mark W. Hendrickson, FloydReports.com
As Americans increasingly feel the pinch of higher prices for food and fuel, the Federal Reserve’s QE2 policy of creating more money has been called into question. Asked if the Fed bore some responsibility for these vexing price increases, Fed Chairman Ben Bernanke essentially replied, “It’s not our fault.” Instead, Bernanke blamed the price increases on “global supply and demand conditions.”
Is Chairman Bernanke correct? To use a well-known phrase: Not exactly.
Far be it from me, as an economist, to downplay the importance of supply and demand in determining prices. Certainly supply and demand have been pushing food and fuel prices higher. But those factors don’t account for all of the increases. For Bernanke to claim that the Fed’s inflationary monetary policies have not put upward pressure on prices is preposterous.
Let’s examine some of the causes of higher food and fuel prices more closely.
First, fuel: For decades, it has been federal policy to declare huge tracts of domestic territory off-limits to petroleum production. Team Obama—whose secretary of energy, Steven Chu, publicly declared in 2008, “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe” (i.e., $8 per gallon)—has been the most radical anti-drilling administration ever. With government having succeeded in artificially suppressing supply to such a great degree, prices for oil and gasoline can’t help but be higher than they should be….