The Price of Gasoline

The Blame Game is Just a Distraction

Nancy Pelosi recently blamed high gasoline prices on evil speculators. Several GOP candidates blamed Obama for high gas prices because of his "green agenda". Why am I not surprised? Both parties try hard to distract us from the tough issues, such as debt, deficits, profligate spending, inflation, money printing and the bankrupt empire, which is why this election cycle is instead about class warfare on the left and culture wars on the right.^a,b

No politician (except Ron Paul) wants to tell the truth about these issues because deficits and money printing are what make it possible for politicians to promise all sorts of goodies to their constituents without having to raise taxes. You want more "free stuff" and more war too? Just whip out the national credit card and charge it (say socialists, crony capitalists and neocons alike). We can print all the money we need, bailout anyone/everyone and bomb/invade as many countries as we want, no problem. Everybody's happy, right? ^c,d

What's Really Behind the Price of Gas?

Are high energy prices really the result of evil speculators or the cancelling of the Keystone project or the lack of new oil wells? Maybe, if you're willing to ignore the fact that gasoline consumption is down 6% and the amount of oil on hand is at a 6 month high. High prices are the work of war mongers in the White House, profligate spenders in the Congress and evil counterfeiters at the Federal Reserve!

Oh, the Federal Reserve calls it "quantitative easing" or QE round 1, round 2 etc. but it's just a fancy term for money printing and it makes everything cost more (because the new money is worth less). About $25 of the price of a barrel oil is due to a "crumbling currency premium" as the Fed devalues the currency. There's also a $15 "war premium" added due to middle-east turmoil. ^e,f,g,h,i,j

We're Stuck in a Vicious Cycle

The more the Fed prints to "keep the economy afloat" (code speak for enabling the deficit spending) the higher oil prices go and the more likely the fragile economy will falter. We're about $10/barrel away from another recession (if history holds true). Oil shocks have preceded three of the worst recessions since WWII; the recession of 73, the double-dip of 80-83 and the recession of 08-09. Prices are now higher than they were prior to the recent recession. (See chart 1 & 2).^k,l,m

Middle-east turmoil is also caused in large part by the Fed's loose monetary policy. Money printing causes high food prices (because 10 calories of energy are needed to produce 1 calorie of food) and high food prices cause geopolitical turmoil. If 50-75% of your personal income goes to feed your family (as is the case in much of the middle-east) then any sharp rise in the cost of food will drive people to the streets in protest. Rebellion precedes U.S. "intervention" (code speak for war).ⁿ

It's a vicious cycle as the Congress spends more than it takes in, which creates more debt than the market can sustain at artificially low interest rates, which spurs the Fed to print more money to support the deficit spending, which causes food and energy prices to rise, which causes political turmoil and unrest in oil producing countries, which motivates us to bomb people, which drives up the price of oil and food further, which drains American wallets and causes us to spend less on other things, which causes the economy and revenues to shrink, which causes the Congress to borrow more and the Fed to print more ... lather, rinse and repeat until all your hair falls out.

Can We Get Off This Crazy Ride?

An obvious way to get off this crazy merry-go-round is to stop the deficit spending, stop bombing other countries and raise interest rates in order to slow inflation, curb debt and attract the saving/investment needed for job creation.

Face it, that's not going to happen any time soon, so let's instead keep up the class warfare and culture wars and war drums and denial, but for heaven's sake don't bring up the unpleasant topics of debt, deficits, profligate spending, inflation, money printing and the bankrupt empire. Distraction is the best policy (if you want your party elected) so let's all pretend that we can simply print ourselves to prosperity again (and print some more jobs while we're at it).

That's the price of gasoline.

References:

a - Pelosi's Cartoonish Comments on Gas Prices (pelosi.house.gov)
b - Obama and Republicans Trade Blame on Gas Prices (CNN Politics)
c - Ron Paul, Only GOP Candidate That Would Reduce Deficits (Fox)
d - McCain Calls for U.S. to Bomb Syria (Foreign Policy)
e - The Mystery Behind Rising Oil Prices Solved (Huffington Business)
f - 600B (initial) QE1 Announced, Nov-2008 (Federal Reserve)
g - QE1 Expanded to 1.5T, Mar-2009 (Federal Reserve)
h - Fed Hints of QE2, Aug-2010 (WSJ)
i - 600B QE2 Announced, Nov-2010 (Federal Reserve)
j - Federal Reserve Launches Operation Twist, Sep-2011 (CNN Money)
k - Historical Price of Brent Crude (Bloomberg)
l - Historical World Food Price Index (Bloomberg)
m - Federal Reserve Economic Data (FRED)
n - The Fuel/Food/Fed Connection (The Armchair Economist)