If you haven’t noticed, gas prices are back down. In fact, oil has been on one heck of a ride, going from $70 a barrel up to over $140 a barrel and back down to $70 in just one year.

The value of the U.S. dollar took a similar ride, except its value decreased dramatically before returning to about where it was 14 months ago.

What just happened?

The Wall Street Journal points out this volatility was an investment bubble caused as much by Ben Bernanke’s moves at the Federal Reserve than by real market conditions. The Fed mistook the credit crisis as a problem with liquidity rather than a fear of insolvency and created the pressures that drove money into commodities like oil and into non-dollar currencies. Now that the extent of the credit crisis is known and a global recession has begun, the bubble has burst.

As much as unbridled greed and poorly targeted regulations are to blame for recent bubbles, the WSJ is right to remind us that the Fed has played its own important and destructive role (even if Alan Greenspan refuses to admit culpability for the ridiculously low interest rates which helped fuel the home lending boom). In our rush to punish and regulate the free market, we can’t ignore our monetary policy and the problems brought on by Greenspan and Bernanke. As the WSJ says:

As Congress plumbs the causes of our current mess, the main one is hiding in plain sight: Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent. The American people intuitively understand what’s been done to them, which is why they are so angry. If the next President ignores the monetary roots of our troubles, he is courting the same fate as George W. Bush.

Government doesn’t like to admit that government can be a problem. But if we want more stable markets in the future, we need to be sure to address the problems on all fronts and not just those within the free market.

Business The Fed Shouldn’t Escape Blame for Investment Bubbles