Today, commodity prices across the board, from coffee to carbon fiber, remain near 25-year highs. High oil prices are not a unique phenomenon, but just another commodity whose price is determined primarily by the value of the dollar. Expensive oil isn't exclusively a monetary event, of course: Risk and demand matter, too. But in comparing oil to other commodities, especially gold, we find that elevated risk and demand explains only $10-$15 of the higher oil price; $30 of the price is explained by a weak, inflationary dollar. The entity most responsible for expensive oil is thus the Fed.

For more evidence of the centrality of the dollar's value, consider what happened to oil just a few years ago. In 1998 the price of crude plunged to $10 per barrel. At the time, China had been growing at 10% per year for 20 years, the U.S. economy was growing fast at 4%, and the Middle East was typically if not maximally volatile, with Saddam testing the U.N. inspection process and the U.S. sending Tomahawks back his way. Demand and geopolitical volatility were fairly high in 1998, and ominous "peak oil" theories had been around for a while; yet oil was just a seventh of today's price. Other commodity prices were also at multidecade lows, with gold sinking below $275 per ounce (versus today's $640). The common factor was a superstrong currency -- a severe shortage of dollars. This deflation roiled world markets and bankrupted many companies and nations with dollar debts: Thailand, Indonesia, Korea, Turkey, Argentina.

The deflationary dollar sent a struggling but oil-rich Russia over the edge into default. Russia today supposedly has some magical power to set world prices, yet in 1998 oil was $60 less expensive, and a desperate Russia was helpless to achieve higher prices. Even after 9/11 and the take-down of the Taliban, oil still traded at $20 per barrel. Adjusted for inflation, this was the price of oil in 1970 -- and in 1960, and 1950.

Then the Fed started making inflationary mistakes. Alan Greenspan's liquidity injections after 9/11 had mercifully relieved the deflation of 1997 to 2001, but the Fed overdid it. By leaving interest rates at 1% for far too long in 2003-04 and then raising interest rates far too slowly through 2006 -- even though the economy and commodity prices had long since recovered -- the Fed weakened the dollar and juiced oil prices.