Economist Hamilton Speaks to Small Cap Pulse About Oil Prices and Monetary Policy

Jun 02, 2008
Author: SCP Editor

June 2, 2008 – We had a great opportunity to talk with economist James Hamilton last week (see “Interviews” elsewhere on this website. The focus of our discussion was oil prices and monetary policy. In particular, what is causing the spike in oil prices and the role, if any that speculation and monetary policy have played in the mix. Hamilton’s insight is particularly timely in light of the fact that he has been both publishing quite a lot lately on oil prices and has also been an advisor to the Fed.

Amongst the key takeaways that we got from Hamilton were:

·         While speculation may be playing a role in driving oil prices, it is not the key reason oil prices have been surging. The primary reason is fundamental supply/demand economics, and with China just coming onto the scene in terms of demand we can expect price pressure to continue.

·         The Fed has played a role in the current inflationary environment that we are in.

·         The greatest danger that Hamilton sees to the U.S. economy is not a recession, but the failure of Fannie Mae and Freddie Mac, which he sees a being very possible.

·         If we aren’t already dealing with Peak Oil conditions, we should expect to be doing so in the relative near term, due to declining production and resources worldwide.

·         The more you know about oil, the more difficult it is to predict oil prices.

To read the complete interview, please see the interview section of the website.