The Fed's relentless policy of interest rate cuts is working like a charm. The dollar hit a record low against the Euro ($1.5057) and oil hit a record $102 in response -- up 325% since January 2001's $24. The record oil price has not yet found its way to the gasoline pumps -- but it will. If oil prices remain above $100, by this summer gasoline prices will top $4 a gallon -- or $80 for a 20-gallon tank. Back in January 2001, you would have paid about $1.59 a gallon -- so you've got a 152% price increase there.
What is going on here? According to the New York Times, producer inflation is up 7.4% -- the worst since 1981. The U.S. has pursued a weak dollar policy -- relative to the Euro, the dollar has lost 63.7% of its value since January 2001 when it traded at 92 cents to the Euro. And since oil is denominated in dollars, a weaker dollar translates into a higher oil price. That excludes the effects of political instability in oil producing regions -- Iraq and environs -- and rising oil demand in China and India.
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