Crude Goes Negative

by Keith Weiner
Gold Seek

In mainstream economic thought, there is one primary way that the economy can go screwy. Prices can rise too fast, and this is called bad inflation. This is to be contrasted with good inflation, when prices are rising at the Goldilocks-just-right rate. Diehard Keynesians (and monetarists) do fret about falling prices. But as Ben Bernanke’s infamous “helicopter money” speech demonstrated, they think that if you increase the quantity of money fast enough you’ll never have falling prices.

Our view is that falling interest rates cause falling prices because each drop in the rate is an increased incentive for producers to borrow to add capacity. The interest rate has been falling for nearly 40 years, which has been a long time of rising incentives to produce more and more. And, it worked, bringing enormous capacity in the form of American shale oil.

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