Here is my thinking. According to Richard Werner “money” (credit) is created by the banks (https://www.youtube.com/watch?v=u8j51XZegsk) and according to Jeff Snider & Emil Kolanowski the Fed doesn’t print money, but does an asset swap and the resulting reserves on the banks balance sheet are better thought of as something like laundry tokens, great if your a laundromat, but not so useful for the general economy. (https://alhambrapartners.com/2021/06/18/eurodollar-universitys-making-sense-episode-82-part-1-federal-reserve-is-not-a-central-bank/). Thus in order to create “money” in our current economy banks have to make loans and again accord to Snider most of this occurs in the offshore unregulated Eurodollar system (estimated through TIC data), because, well, it is unregulated and as Bill Black indicates bankers incentive to make a loan is from the fees they collect not so much with what will happen to the loan or the bank. (https://www.ted.com/talks/william_black_how_to_rob_a_bank_from_the_inside_that_is). After 2008 crises, which was a crises in the value of collateral backing up the “dollars” (credit) created in the eurodollar system, even though regulators eliminated the mark to market requirement so banks could value the collateral at what ever they needed it to be, the trust was lost and surprise, surprise, surprise, bankers don't trust each others valuation of their collateral and now rush back to the most liquid collateral, on the run treasuries, whenever there is any sort of stress on the system. In fact there is currently so much demand for treasuries that the Fed has to offer reverse repo to keep short term treasury rates going negative and blowing up the Money market funds. (https://www.sgtreport.com/2021/06/with-reverse-repos-the-fed-is-now-trying-to-clean-up-its-own-mess/). Remember higher demand lower yields. Then there is the actual economy, while dramatically improved from last year, small businesses, which provide most of the income growth are still getting killed and we are nowhere near back to “normal”, which back in 2019 was not looking that good to begin with. So why the higher prices? I believe most is do to just in time supply chains failing and a cascading effect throughout the economy especially here in the US where we’ve outsourced just about everything we can. Speculators seeing this have jumped in driving up prices and making the situation worse. Then there is the shut downs forcing everyone into monopolies as they were the only ones allowed to operate. Just like credit cards offering you that cash back, we all know it is ultimately coming out of our pocket, but except in a few cases such as gas where you can buy it for 10% less with cash, they have a monopoly with no alternatives. The same is true for the “free” shipping and great deals you get on Amazon while it charges the sellers 25% fees. That is only possible with a monopoly and it comes out of your pocket via higher prices, because sellers are forced to sell through the platform. The same holds true for education, healthcare, etc. Hell, Mat Stoller even indicates it applies all the way to things such as cheerleading where Bain Capital has a monopoly (https://mattstoller.substack.com/p/how-a-cheerleading-monopolist-played). As we know from the failure of Bill Gates monopolies to improve Ag (https://vandanashivamovie.com/) with ~70% of food being produced by small farms or the SolarWinds security debacle (https://mattstoller.substack.com/p/how-to-get-rich-sabotaging-nuclear), economies of scale haven’t played out so well and the actual rate of production growth is down thus putting more stress on the system by not producing sufficient collateral to back up all that credit growth.
Now there is no doubt that oil is the key to running our system and we are, as Chris clearly demonstrates, at a turning point where supply will no longer meet demand at least if the economy keeps growing. I believe in the middle of last year Art Berman predicted that because of lack of investment (people tired of loosing money) that oil would get to around $80 at this point. Gail Tverberg estimates it will take $120 oil to make the offline production profitable and that it is unrealistic to expect alternatives to fill the gap (https://ourfiniteworld.com/). Nate Hagen points out that because industries have leveraged cheap oil to allow their inefficient processes to produce inexpensive products, think industrial Ag, that they are extremely sensitive to rises in prices, thus our economy can’t operate for long at oil prices higher than they currently are. (https://www.postcarbon.org/energy-money-and-technology-from-the-lens-of-the-superorganism/). So Gail postulates that rather than a steady increase in oil prices due to insufficient supply, we will get an unstable system which wildly fluctuates between the extremes, which depend on how well the industry can absorb the shocks at the moment. I suspect currently not all the well, so I’m not betting on the oil price rising much more, though if I was, I would be looking at Art Berman’s models for conformation. While definitely not an economist, I suspect expectations have gotten over the tips of their skis on this one and that we will see short term, the market and commodities face plant as bond yields and a strengthening dollar imply. The dollar will continue its downward trajectory overall, but relative to other world currencies I think at the moment it has gone too far because compared to the rate it was being created in the Eurodollar system its growth rate has been curtailed for lack of trusted collateral and no matter what the Wizard (Fed) says they are not really in control, though they can, with the help of the treasury and the companies that actually control the market Blackrock, Vangard & State St (https://www.thinkadvisor.com/2020/11/30/group-aims-to-limit-power-of-blackrock-vanguard-state-street/a0 influence asset prices and thus (collateral values) liquidity in the market. Love to see what people who understand the economy much better than I think.