Obama Doctrine: Middle East Chaos, Soaring Oil Prices Spark Global Recession Fears

The turmoil in the Middle East, the Federal Reserve's decision to further devalue the U.S. dollar through a third round of "quantitative easing" (QE3), and rising oil prices are combining to create a toxic economic brew that could send the global economy into recession. 

That was the assessment of International Energy Agency chief economist Fatih Birol. "I see the [oil] prices today, in this economic context, as unbearable for consumers," said Birol on Friday. "High prices together with other factors could push the global economy back into recession." 

Mr. Birol's comments come as U.S. oil prices hit a four-month high on Friday:

Since late June, the price of crude oil has climbed about 25 percent, fueling a 16-cent increase in the average price of regular gasoline and adding to the economic headwinds facing President Obama in the final weeks of the election campaign.

Industry experts believe that President Barack Obama may use the Middle East uprisings and soaring fuel costs to justify tapping the nation's 700 million-barrel emergency Strategic Petroleum Reserve, similar to what Mr. Obama did last year to no lasting effect.

But it was the Federal Reserve's decision to pump $40 billion so-called "stimulus" dollars a month into the U.S. economy in the form of buying mortgage-backed securities that ultimately may prove to be the match that lit the economic powder keg. As the value of the U.S. dollar goes down, oil prices go up. That means slower economic growth and higher consumer prices. 

As Reuters explains, the confluence of all these economic factors is producing a chain reaction of higher consumer prices, plunging industrial production, and soaring gas prices:

Highlighting the risk to the economy from surging oil prices, a jump in gasoline costs pushed up U.S. consumer prices in August at the fastest pace in more than three years and squeezed spending on other items, threatening to slow economic growth.

Industrial production dropped 1.2 percent in August, the biggest decline since March 2009. The consumer price index increased 0.6 percent, the first rise in five months and the biggest since June 2009.

Gasoline prices, which also recorded their largest increase since June 2009, accounted for about 80 percent of the rise in consumer inflation last month, the Labor Department said.

Whether Mr. Obama can duct tape the looming economic collapse long enough to win reelection remains to be seen. 

However, in some ways, Mr. Obama should be claiming credit. As Obama Energy Secretary Steven Chu told the Wall Street Journal back in 2008, the goal all along has been to explode U.S. gas prices to the $6 to $8 a gallon prices found in Europe. "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe," Mr. Chu said.

Through its mismanagement of the Middle East crisis and endless rounds of "quantitative easing" (and the concomitant currency devaluation such "stimulus" brings), the Obama Administration has almost reached its goal of European-style gas prices. 

On Friday, a gallon of regular gas in the Bronx cost nearly $5 a gallon.


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