By late morning in New York on Monday, the price of oil had climbed by 20 per cent in barely five days and scarcely anyone had noticed. Then it went into overdrive, hitting $130 at one point before settling at $120.92. Last Tuesday, it traded at $90.51 – a swing of 44 per cent from bottom to top.

This had little to do with the supply of and demand for oil and everything to do with the fallout from the “Paulson plan” – the proposal to risk $700bn of US public money in a bail-out of toxic securities held by banks.

Oil rose as doubts surfaced about the plan.

First, is it a good idea? Pundits on the left and right have balked at the huge commitment of taxpayers’ money to support Wall Street institutions. The government does not get a stake in return and the populace gets nothing, other than the avoidance of a meltdown.

Second, will it happen? Those doubts have entered the political process. Members of Congress – and the two presidential candidates – have difficult calls to make in the next two weeks.

Third, will it work? In the long run, the rise in the US government’s indebtedness will mean huge issuance of Treasury bonds, which will raise bond yields and the mortgage rates payable by consumers. Both are already rebounding. That would harm house prices and toxic mortgage-backed bonds.

A key variable is the dollar. So far, it has fallen in response to the possible huge rise in the US deficit. The markets seem to have gone a step further and assumed that this step will be be inflationary and cause financial assets to lose value.

In that situation, the thing to do was to head for real assets, led by oil, although other commodities, led by silver, also had a strong day. Unfortunately for the Paulson plan, the inverse relationship between oil and the dollar is one of the few financial constants to have survived the past few days.