No, it's not because everyone drives their cars too much. And it's not because we're running out of oil. It's not even because of speculators. The reason gasoline is so expensive is because of you.
Gas prices are high because the dollar is plummeting. The dollar buys less of everything than it used to because of inflation. Inflation is that high because the U.S. government continues to create new dollars out of thin electrons. They create the dollars because that's the only way to finance the enormous size of the government. The government is that big because you asked for it to be that big.
Real inflation is about 10%, maybe much higher. But assuming only 10% annually, the dollar is today worth approximately half of what it was just 7 years ago. Therefore it takes twice as many dollars to buy a gallon of gas (or anything) as it did 7 years ago. Without inflation over the past 7 years, that $4.50 you spend for a gallon of gas would only cost $2.25.
Actually, without inflation, that gallon would cost even less than $2.25. Because people are losing confidence in the dollar, they are looking for ways to protect their money. Real estate and the stock market seem like bad investments because of their recently deflated bubbles. Government bonds also look bad because investors know they'll be paid back with inflated dollars. The one investment that looks good right now is commodities. That includes oil. This heightened investment raises demand, which according to Economics 101, raises prices.
Without all the added speculation caused by the inflated dollar, a gallon of gas might very well be below $2 right now.
So the inflated currency has a doubly bad affect: the dollar doesn't buy as much of anything as it used to (including gas), and it's causing an increase in demand.
Are investors in commodities evil speculators? Hardly. The vast majority are average people who have worked hard all their lives for their money, who want to provide a future for their children, and who are trying hard not to have their money inflated away.
What is the solution to all this? Stop inflating the currency. But the U.S. government won't stop because that's the only way to pay for the incredibly bloated government that you asked for.
It doesn't matter whether you voted for a Democrat or a Republican; it's your fault. Politicians from both parties (except for Dr. Ron Paul) continue to expand the size of government and literally laugh at the idea of eliminated the Federal Reserve.
You might say, "I'm gong to vote for McCain because he won't raise taxes, so businesses will be able to invest and create more wealth." Or you might be on the other side and say, "I'm going to vote for Obama because he'll raise taxes to help pay down the debt." Sorry, but neither of those voting plans addresses the real problem, which is the size of the government. McCain plans to continue the Iraq war and basically keep all government programs and agencies at their current levels or higher. Obama plans to end the Iraq war (some time), but has a host of new expensive social programs, and also will not eliminate or even reduce any part of the government.
The situation will continue to get worse. Our debt grows larger by the second with no hint of any change from either party. The federal budget is somewhere around $3.1 trillion, with revenues of only (ONLY!!!) $2.4 trillion. That difference of $700 billion is funded by debt. That's another $2 billion every day to pay for the government for which you voted. That debt is the cause of the rise in the price of gasoline.
Go ahead and vote for McCain or Obama, and vote for whichever local representative you think will bring home the most pork to your district. But the next time you're in your car complaining about the high price of gas, just turn your rear-view mirror a little bit to the left and you'll see who is to blame.
©2008 Jeff Wrobel, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Wednesday, June 25, 2008
Last modified: Wednesday, June 25, 2008
The views expressed in this article are those of Jeff Wrobel only and do not represent the views of Nolan Chart, LLC or its affiliates. Jeff Wrobel is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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Reader Comments:
Posted By: Beatnik
Date: 2008-06-26 14:39:12
One reason this isn't in the "blindingly obvious" category of society's ills is because most people think that inflation affects all prices across the board.
I haven't read anything yet where someone delves into that question. Why is it that gas & food are on the rise, yet the price of computers stays the same?
As far as I can tell it's because the things that cost the same come from the USA or other countries which peg their currency to the dollar, who therefore trade goods at closer to the dollar's generally misperceived value. Is there merit to that idea? Economics places about 12th in my list of interests so I just don't know.
That idea fits with the facts, though - it's easier for mouth-breathers to deny the existence of inflation than it is for them to recognize bubble economics.
Posted By: Mike Stahl
Date: 2008-06-26 18:34:41
Jeff,
You are quite right about the devaluation of the Dollar, of that there is no question whatsoever, and it has contributed to high commodity(not just oil) prices. That being said, the commodity price is also influenced by utterly ridiculous interest rates-this is not necessarily an increase in the money supply, and therefore can reverse itself just a quickly, when the Fed(who created the mess) raises interest rates. When it does the people that bought commodities at current rates will get burned.
The Fed will need to do this very thing to keep countries, such as Iran who recently threatened to do just this, from trading in Euros or Pounds....or more ominously to forestall a Chinese move on Tiawan(they would threaten to dump securities and tank the Dollar in order to have a free hand in Tiawan). Any of these things would dramatically lower commodity prices(they should be much lower).
Now would be a very dangerous time to invest in commodities.