Apr, 08, 2011 (LBO) – A top US monetary economist has poured cold water on fears about the world running out of oil, an idea which gains special prominence when the US Fed loosens monetary policy, debases the dollar and sends commodities bubbling up. Nixon at the time even halted exports of food commodities, instead of tightening policy.
Commodity prices were only tamed after 1981, after then Fed chairman Paul Volcker tightened monetary policy, bringing commodity prices including gold, back down to earth.
Hanke, now senior fellow at the Cato Institute was in 1981 an economist at the President Reagan’s Council of Economic Advisors.
The 1980’s (now called the period of Great Moderation) had Europe in particular rushing in with price support schemes for farmers as prices went tumbling down. Headlines of the time had words like ‘butter mountains’ and ‘milk lakes’ instead of ‘food crisis.’
Commodity prices are heavily influenced by reserve currencies, especially if a reserve currency is a widely used denominator currency.
Hanke says most people do believe that mineral resources, including oil, are doomed to disappear.
“It’s obvious: Start with a given stock of provisions in the cupboard, subtrac