Chief Economist Eugenio J. Alemán discusses current economic conditions.
The phrase “The dogs are barking Sancho, a sign that we are moving forward!” is used in Spanish to convey that if there is a lot of noise, it is because what we are doing is effective, and someone probably is not liking it.1 The phrase is well-known but is incorrectly attributed to the famous fictional character from the novel, Don Quixote de la Mancha, written by Miguel de Cervantes Saavedra.
At this point, you may ask, correctly, what does this have to do with economics or the economy? We ask that you continue to follow our argument as our line of thought is going to become clear in the next several paragraphs.
Over the last year or so, there has been a barrage of commentaries and stories going around the internet on economic topics like the U.S. dollar’s impending demise or issues on the U.S. creating a central bank digital currency, etc., that are clearly conveying that something is happening, that is: “The dogs are barking Sancho, a sign that we are moving forward!”
We have already written about what we think about the ‘impending’ demise of the U.S. dollar. However, today, we thought we should write about money supply and the price of petroleum, but more specifically, about real money supply and the real price of petroleum, that is, adjusted for inflation. We are not going to write about what we think the price of petroleum is going to be, we leave that to the experts on this topic. What we are going to write about is what happens to the price of petroleum, ‘normally,’ when monetary authorities decide it is time to shrink the money supply. 2
The reason for this is that we think that all of this noise is probably the consequence of current monetary policy in the U.S. as well as across the global economy. We think it is not a coincidence that the stories about the U.S. dollar’s demise involve some of the countries that have the most to lose if the price of petroleum declines – Saudi Arabia and Russia.