When central banks flood the economy with excess currency, price spikes and bubbles result—this time too many dollars have pushed oil through the roof.
Although he doesn’t say it exactly the same way we at WealthCycles.com do, Passport Capital founder John Burbank similarly pins responsibility for soaring oil prices on the excess liquidity generated by central bank shenanigans.
In a Bloomberg video interview, Burbank recognizes that rising oil prices are a big problem for much of the world struggling to regain economic strength in the wake of the 2008 crisis. “The QE3 [quantitative easing] now being pursued in Europe and Japan, and in the U.S. with ‘twist’ (see the WealthCycles.com article Fed Says Let’s Twist Again) and other means, has negative feedback loops…,” Burbank says. “I don’t think oil is going to stop until the economy breaks.”
The average consumer is not doing well. Their income has been flat for almost 10 years, but their costs keep rising. They had a benefit with gasoline being cheaper this year, but the oil price is now breaking out because of all liquidity in the world.