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Human Events...
Weak Dollars, Strong
Oil
Behold the power of the
true global currency.
by John Hayward
05/09/2011
Reuters reports that “oil rebounded by more than $4 on Monday,” a
bounce analyst Carsten Fritsch of Commerzbank said was due to “a
combination of the weaker dollar and bargain hunting,” as “some market
participants consider the lower price levels after the sharp drop on
Thursday a good buying opportunity.”
An earlier report from Reuters noted that average U.S. gas prices hit
$4 per gallon this weekend, after a climb of nearly 12 cents per gallon
over the last two weeks, but “last week’s fall in crude oil prices may
lead to an 8- to 12-cent drop in prices at the pump over the next few
weeks.” Today’s rebound of oil prices makes that happy forecast
look a little dubious, especially over the long term.
Those “weak dollars” driving up oil prices are a result of deliberate
U.S. government policy – the now-infamous “Quantitative Easing”
strategy, which was supposed to entice foreign customers to buy more
American goods by weakening the dollar. It didn’t do much good
for anyone, and the rising cost of food and gas are but two of the ways
in which it is harming everyone.
America’s struggle with rising gas prices provides a lesson in the
nature of currency. In theory, the value of currency should be
relatively stable. One of the functions of government is
providing a reliable medium of exchange, to elevate commerce beyond the
barter system. Much of the strength of an advanced economy comes
from the faith consumers and producers place in the value of money,
which is obviously far more efficient than lugging gems, precious
metals, and livestock to the mall when you want to go shopping.
These days, and despite all of its fluctuations, oil serves as a more
stable “currency” than the dollar. In fact, a lot of the dollar’s
remaining strength comes from its usefulness to the oil market.
Our heavily indebted government relies on massive foreign purchases of
the dollar. Other countries buy dollars so they can use it to
purchase oil. That’s one reason the movement, spearheaded by
China, to replace the dollar as a global currency is so
troubling. You’re not going to like what happens when the dollar
is no longer the preferred tool for trading in oil – the real global
currency.
Our government has been printing dollars like mad, while pointedly
refusing to develop oil resources. That’s not a recipe for
long-term reductions in the price of gasoline. The value of oil
is not abstract – its exact price bounces around as the market
fluctuates and speculators shake their Magic 8-Balls, but the
underlying value of this essential commodity is driven by demand.
Everyone needs it, and by refusing to increase domestic production, our
government places our needs into direct and brutal competition with
consumers around the world.
That competition is conducted with a domestic currency whose value has
been deliberately reduced. The cost of producing and shipping
virtually everything increases as gas prices rise… then increases
again, as consumers who have been mugged at the pump find themselves
with less money to make other purchases, pushing down retail
demand. Of course you’re paying more for gas, food, and
ultimately everything else. It would be difficult to point to any
policy of this Administration that has not created this situation
intentionally.
These high prices contribute to minimal economic growth and high
unemployment. Among other effects, soaring prices at the pump
will begin reducing the mobility of the American workforce, as
expensive commutes reduce employment options. Combine these
factors, and you might see the return of a rough beast that slouched
toward Jimmy Carter’s White House to be born. If you’re not old
enough to remember the late 1970s, ask your parents to explain what
stagflation was… or just wait until gas climbs another fifty cents a
gallon, and you’ll be able to enjoy it yourself.
Read it at Human Events
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