I’m not especially worried by the stock market’s fall over the past two days. Animal spirits and greed are typically clueless to gathering dangers, whether it be the Great Panic of 2008 or the risks to oil and gas supplies from the spreading Middle Eastern upheaval. I was made more anxious by Treasury Secretary Tim Geithner’s comments this morning during a Bloomberg Breakfast event.
“Central banks have a lot of experience in managing these things,” he said. “These things” being rising prices as the result of an oil shock. Oh, yeah, just ask G. William Miller or Arthur Burns, the Federal Reserve chairmen who were knocked sideways by the 1970s oil shocks and resulting inflation.
To be sure, political leaders then were unwilling to support the nasty measures needed to rein in rising price levels — they feared the effect on employment. And now that we face terrible unemployment, both the Fed and political leaders would face an even greater conundrum, whatever Ben Bernanke’s bold talk about being be able to turn on a dime to fight an inflation outbreak.
Even without inflation, however, it’s worth remembering that most of the recent economic downturns have been associated with oil shocks. And the recovery remains extremely fragile for most Americans. But Geithner says, “The economy is in a much stronger position to handle” increasing oil prices. As the blogger Tyler Durden quipped on Zero Hedge blog, “We are, all of us, now doomed.”
Today’s Econ Haiku:
Will Airbus really win this?
Or, “It ain’t over…”