How Saudi Arabia Is Running Our Economy

Saudi Arabia is running the U.S. economy.

I'm not sure the Saudis want the task, but they've got it. Because the U.S. still doesn't have a national energy policy, we've thrown decisions about how fast our economy grows and whether our standard of living rises or falls into the hands of Saudi Arabia's oil ministry.

That's risky, since the economic self-interests of Saudi Arabia and the U.S. aren't always aligned, and because keeping the fractious and often dysfunctional governments of the world's oil producers on the same economic course is a whole lot harder than building consensus among the governors of the Federal Reserve.

Fed Ain't What It Used to Be

Remember the good ol' days? Back when the Federal Reserve and its chairman were in charge of our economy? The Fed would try to find a delicate balance in setting interest rates: high enough to control inflation and low enough to encourage economic growth. Once upon a time, those policy changes were actually the most important decisions anyone made about the U.S. economy.

By the Fed's own admission, the growth of global liquidity has reduced the U.S. central bank's ability to control interest rates -- and thus the economy -- in the U.S. Think about this: The Fed raises short-term interest rates relentlessly from their 1% low in June 2003, and yet long-term rates sink as global cash flows overwhelm the Fed's domestic policy shifts.

Still, the U.S. stock and bond markets hang on the Federal Reserve's every word. Just last week, the stock market rallied on the release of minutes from the Fed's rate-setting body, the Open Market Committee.

How quaint. Investors would be better off parsing the comments of Saudi Oil Minister Ali Naimi.