I thought it might be useful to look graphically at what the combination of higher oil prices and the falling dollar are doing to the US.

Here's the first chart - in millions, the value of US oil imports in millions of real 2000 dollars:

Note that, in real dollars, it has a little more than doubled in about two and a half years.

But how much of a problem is this really? Let's take a look at it as a percentage of imports.

So as a percentage of total imports petroleum is up about two thirds. In other words, the US has been increasing its imports oil faster than it has been increasing other imports.

Let's see how much of that is due to price increases, shall we?

So, what we see above is that Americans continue to import more oil, at higher prices. Let's do a little basic micro economics here. If you raise prices and your customer buys more of your product, are you going to raise prices again?

Yeah, me too.

And this is part of why Bernanke's got a problem. Too much of all that money in the system is getting flushed into commodity speculation. It's dead easy money. Let's take a look at real petroleum prices:

Lay your eyeballs on that and imagine you had started buying futures starting June 2004. Many many people (including myself, Stirling and Oldman) were all calling for an extended oil bull market by that time. (Sadly, I did not follow my own advice. Something about no money.) It wasn't a hard call to make, and it still isn't. You put money in, you get more money out.

Bernanke needs to get people to stop buying so much oil. It's a weakness, a bull market that any idiot can exploit, and it's now becoming self-reinforcing as all bull markets (and bubbles) do at certain stages. The more money that is chasing a fixed number of barrels, the higher they get bid.

What is further clear from these charts is that Bernanke isn't tightening fast enough. He needs to stop pumping the gas pedal and slam on the brakes. The reason is that inflation is beginning to really hurt in the US, it's even getting to the point where so called core inflation (the inflation that measures, as Ritholz notes, what your life would be like if you didn't eat, have to pay a mortgage or property taxes, walked everywhere and didn't need to cool or heat your house) is beginning to show real inflation. Other measures of inflation have been overheated for some time now.

So the choice, as I noted before, remains the same. Slam on the braks and have a nasty recession - or ease the brakes on, have a nasty inflationary bout, and then have a nasty recession.

Scenario two will be chosen, because scenario one would lead to a Republican wipeout in November 2006. And Bernanke has spent his entire life trying to figure out how to avoid the New Deal by avoiding the Great Depression. And that means he isn't going to be the one who, by doing his job by the book, puts Democrats back in charge of the House and the Senate.

Which, essentially, is the decision Greenspan made in 2002 and 2004 - that politics trumped economics. Neither man is going to be looked on favourably by posterity, because both men have taken a non political position and turned into a partisan office.