After hitting a seven-week low yesterday, crude oil prices began to rise today.

Crude oil for September delivery rose $1.14 to $125.58 a barrel at the 2:30 p.m. close of floor trading on the Nymex.

Much of the recent drop in oil prices is due to the rally in financials, says Byron King. But the black goo is still double the price it was two years ago. Worse still, the US is now coping with chronic inflation. Precious metals are the best way to your savings and purchasing power…

What seems pretty clear is that at $140, a lot of things in this world just don’t work anymore. Airlines are, obviously, one business not built around highly priced oil. Worldwide, 24 airlines have gone bankrupt so far this year.

But there are other parts of the transport system, the food system and the economy that are cratering with the oil run-up.

Sure, a lot of things don’t work well even with oil at $130, $120 or $110. But that’s not the point. It seems that above $140, the developing world just stops developing. We saw pain at $100 and above. We were beginning to see true demand destruction above $140. So oil pulled back, and perhaps for a while.

I should add that the recent rally in financials pulled a lot of money out of oil.

Last week, the US monetary authorities made a fateful decision. Rather than let Fannie Mae (NYSE:FNM) and Freddie (NYSE:FRE) Mac fail, or take these two horribly mismanaged firms over via receivership, the Fed and Treasury Department, essentially, nationalized the bad risks and socialized the losses. This is going to come back to haunt and hurt us, like a guy with a chain saw on Halloween night.

And despite the oil pullback, crude petroleum is still double the price of what it was just two years ago. So we are living with a 100% increase in the nominal oil price.

The oil run-up was not all just insatiable demand meeting flat supply. I’ve discussed this in other articles. The US dollar has been mismanaged for decades, and thus we live in chronically inflationary times. And couple this with the horrid shenanigans of Wall Street and the overall U.S. banking system in this modern era. Ugh!

Remember how some people used to dismiss the fact that the U.S. was deindustrializing? Remember how some people used to praise the so-called “service economy”? They would say things like, “The U.S. capital markets are the most efficient in the world.”

To which we now reply, “Oh, really?”

How could the U.S. banking and finance system ever have gotten so bad? Don’t we have regulators who are supposed to look over the shoulders of the bankers? Don’t they teach people how to be careful in business schools? Heck, here at Agora Financial, we’ve been writing about the looming implosion for several years. It’s not like it was some state secret.

So now we are at the moment of decision. How many billions of dollars does the U.S. banking system have to lose? OK, how many tens of billions? Hundreds of billions? When you add in the toxic derivative instruments, it adds up to trillions of dollars. And it looks like the nation is on the hook for a lot of it.

Where can things go from here, what with all that worthless paper floating around?

At this stage, I can only re-emphasize that you ought to own some precious metals. Own gold or silver coins or bars, ETFs or small- or large-cap shares. But own something. It may well be the only way you can preserve your savings and purchasing power over the long haul.

Source: U.S. Energy Prices and the Declining Dollar