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Charting The Course To $7 Gas

So here's a recap: The Fed has tripled the money supply and reduced interest rates to zero. A stronger economy is trying to get off the ground but can't because all the newly created money is being retained by the banks in reserve. Eventually the banks will start lending again, and the velocity of money will increase. When that occurs, inflation will begin to show signs that even Bernanke can't ignore, and he will respond by raising rates. Eventually, increased velocity, inflation, high oil prices, and interest rates will conspire to crash the market again. And we start the whole thing over again — if we can. With the tripling of the money supply, cold mathematics would imply that eventually prices will likewise triple — once the new money has made it out into the economy. Thus, $3.50 gas becomes $10.50 gas. Clearly the math is not as easy as that, because really no one (especially Bernanke) can predict what will happen; but if history is any guide, then all of a sudden, $7 gas seems like a deal.

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