If anyone wonders if Bob Brinker reads the blogs and message boards that are critical of some of what he says, yesterday's complete about face where he correctly stated the FOMC could raise rates to lower the impact of higher price oil on inflation should end all doubts. This is what I've been posting for some time to those who have said Brinker is right that higher priced oil is not inflationary.
My Friday article "Bob Brinker WRONG about Oil Prices and Inflation"
Brinker also correctly said that it is hard to lower the demand for oil by raising rates because much of the new demand comes from China and India. We can slow their demand for oil by killing demand in the US , their big customer, via a recession or slowing growth to just above zero but those economies will still want to grow as they embrace capitalism.
About the only thing he held on to from his past incorrect statements about oil not being inflationary was saying "core inflation is up a small 1.9% despite huge gains in oil prices." This is not "small" and is at the upper end of the Fed's acceptable range of 1 to 2%. It was higher at 2.9% earlier this year but when core inflation fell to under 2%, the FOMC started cutting rates. Given the collapse in the housing market, if not for inflation from higher priced oil and other commodities, we might be worried about a dangerous deflationary spiral from falling housing prices and repriced SIVs (note #1).
Bob Brinker made a lot of good comments about how we wasted our opportunity to get off Middle East oil after the 1974 embargo. His guest, an auto writer emeritus from Forbes, said America is a bunch of fat people who want and need big, comfortable cars to drive to their $100,000 jobs and the current price of oil is not a big deal relative to being comfortable. He also said this was true in Europe too where rich Germans love their big, powerful cars. (just look at the big, powerful, heavy Audi's, BMW's and Mercedes with 8 cylinder engines. ) The guest also said he believes gasoline will have to get to about $7 per gallon before Americans make significant changes in driving habits.
- SIV is "Structured Investment Vehicle." Here is a good article on SIVs called "Shedding Light on SIVs"