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Title: Gasoline Prices Are Not Rising, the Dollar Is Falling (Obamanomics)
Source:
Forbes
URL Source: http://www.forbes.com/sites/louiswo ... g-the-dollar-is-falling/print/
Published: Feb 24, 2012
Author: Louis Woodhill
Post Date: 2012-02-24 11:49:50 by Hondo68
Keywords: higher taxes on energy, give stagflation another try, prices equilibrate with gold
Views: 3837
Comments: 8
Panic is in the air as gasoline prices move above $4.00 per gallon. Politicians and pundits are rounding up the usual suspects, looking for someone or something to blame for this latest outrage to middle class family budgets. In a rare display of bipartisanship, President Obama and Speaker of the House John Boehner are both wringing their hands over the prospect of seeing their newly extended Social Security tax cut gobbled up by rising gasoline costs. Unfortunately, the talking heads that are trying to explain the reasons for high oil prices are missing one tiny detail. Oil prices aren’t high right now. In fact, they are unusually low. Gasoline prices would have to rise by another $0.65 to $0.75 per gallon from where they are now just to be “normal”. And, because gasoline prices are low right now, it is very likely that they are going to go up more—perhaps a lot more. What the politicians, analysts, and pundits are missing is that prices are ratios. Gasoline prices reflect crude oil prices, so let’s use West Texas Intermediate (WTI) crude oil to illustrate this crucial point. As this is written, West Texas Intermediate crude oil (WTI) is trading at $105.88/bbl. All this means is that the market value of a barrel of WTI is 105.88 times the market value of “the dollar”. It is also true that WTI is trading at €79.95/bbl, ¥8,439.69/barrel, and £67.13/bbl. In all of these cases, the market value of WTI is the same. What is different in each case is the value of the monetary unit (euros, yen, and British pounds, respectively) being used to calculate the ratio that expresses the price. In terms of judging whether the price of WTI is high or low, here is the price that truly matters: 0.0602 ounces of gold per barrel (which can be written as Au0.0602/bbl). What this number means is that, right now, a barrel of WTI has the same market value as 0.0602 ounces of gold. During the 493 months since January 1, 1971, the price of WTI has averaged Au0.0732/bbl. It has been higher than that during 225 of those months and lower than that during 268 of those months. Plotted as a graph, the line representing the price of a barrel of oil in terms of gold has crossed the horizontal line representing the long-term average price (Au0.0732/bbl) 29 times. At Au0.0602/bbl, today’s WTI price is only 82% of its average over the past 41+ years. Assuming that gold prices remained at today’s $1,759.30/oz, WTI prices would have to rise by about 22%, to $128.86/bbl, in order to reach their long-term average in terms of gold. As mentioned earlier, such an increase would drive up retail gasoline prices by somewhere between $0.65 and $0.75 per gallon. At this point, we can be certain that, unless gold prices come down, gasoline prices are going to go up—by a lot. And, because the dollar is currently a floating, undefined, fiat currency, there is no inherent limit to how far the price of gold in dollars can rise, and therefore no ultimate ceiling on gasoline prices. Federal Reserve Chairman Ben Bernanke uses a “core CPI index” that excludes food and energy to guide monetary policy. From Big Ben’s point of view, rising gasoline prices are not a problem. For the rest of us, they are becoming a big problem. Over the centuries, gold has been “the golden constant”. Eventually, all prices equilibrate with gold. This is why gold represents the best available standard in terms of which to define the value of a monetary unit. Forty-one years ago, when the value of the dollar was defined in terms of gold at $35/oz, WTI was selling for $3.56/bbl. Right now, the threat posed by rising gasoline prices is not just to family budgets. An even greater danger is that the government will use escalating oil prices as an excuse to do something stupid. After President Nixon abrogated the Bretton Woods monetary arrangement in stages starting in September 1971, both gold prices and oil prices started to rise. The government responded by imposing wage-price controls. This made a bad situation much worse. During the 1970s, the toxic combination of a weak dollar, high tax rates, and onerous regulations introduced a new word into America’s economic vocabulary: stagflation. Reaganomics banished this word to the history books. Now, President Obama and Fed Chairman Bernanke are teaming up to give stagflation another try. It is not likely that Americans will like it any more this time around than they did 40 years ago.
This time around, the stupid policies being considered to “deal with” rising gasoline prices include additional cuts in payroll taxes and higher taxes on energy producers.
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#1. To: hondo68 (#0)
So then "drill baby, drill" isn't the answer to high oil prices?
Anyone claiming to be an expert is selling something. I brandish my ignorance like a crucifix at vampires. Aaron Bady
Supply and demand. More oil will at least slow the speed of inflationary price increases. End the FED, end corporate person-hood, end obongonomics, end the phony wars, vote Ron Paul!
Obama's watch stopped on 24 May 2008, but he's been too busy smoking crack to notice.
I guess the falling dollar only affects oil prices.
Almost every country in the Middle East is awash in oil, and we have to side with the one that has nothing but joos. Goddamn, that was good thinkin'. Esso posted on 2012-01-13 7:37:56 ET
I'm not sure about that, did you see State Tax Revenue Rising At The Fastest Pace Since 2006? Does that mean economic activity is picking up, or the dollar is falling.
Anyone claiming to be an expert is selling something. I brandish my ignorance like a crucifix at vampires. Aaron Bady
Of course not. Demand is way down, inventories are up, and refining is below peak levels. "US refined product demand at 15-year low -EIA on: February 23, 2012, 12:41:03 PM NEW YORK, Feb 23 (Reuters) - Total U.S. four-week average demand for refined products fell to the lowest level since April 1997, data from the U.S. Energy information Administration showed on Thursday. The four-week average demand for refined products like gasoline and distillates fell to 18.05 million barrels-per-day (bpd), 6.7 percent lower than a year ago. Four-week average gasoline demand fell 6.1 percent compared with a year ago while distillate demand was 5.9 percent lower than during the same week last year, according to the data. Meanwhile, crude inventories were at the highest level since September 2011, rising 1.63 million barrels to 340.71 million barrels, EIA said. Midwest refinery utilization rose 3 percentage points to 96 percent of capacity. http://af.reuters.com/article/energyOilNews/idAFL2E8DN6Z720120223
The bottom line is that North American oil producers have been quite fortunate to benefit from artificially high oil prices, while U.S. and Canadian consumers have not been so lucky. The same trend is happening in Europe and other developed nations. The only saving grace at the moment is that China, the world’s second largest economy, has been able to benefit from lower oil prices on its Iranian imports. In the meantime, speculators keep bidding up oil prices and gasoline prices to new yearly highs. We fear that the longer this continues, the greater likelihood we’ll see a material impact on the global economic recovery. http://business.financialpost.com/2012/02/23/soaring-oil-price-ignores-fundamentals/?__lsa=cbd1cfd7
Anyone claiming to be an expert is selling something. I brandish my ignorance like a crucifix at vampires. Aaron Bady
After PO May 2005, there is no more oil. Reserves are meaningless. Everyone, except those the USSA is attacking, are pumping as fast as possible. And Usan demand has fallen 4 MMBD in less than a year. Gasoline Usage down at least 20%. With both showing no signs of stopping. And $3.67 is Not a Falling Dollar. Please. That Amerika can't afford this shows our desperate straits. And London's The DailyMail gets it. I've never seen a Headline Last a Paragraph: www.dailymail.co.uk/news/...ng-protests-continue.html
Sun Feb 26, 2012 12:43PM GMT Iran has refused to deliver a 500,000 barrel shipment of oil to Greece in response to EU oil sanctions imposed against the country. http://www.presstv.ir/detail/228732.html Now GREECE has hyperinflation. They're totally isolated. The Germans have announced they're sending in their own tax collectors...LMFAO But let's attack Iran now. That'll fix things....8D
Gasoline Prices Are Not Rising, the Dollar Is Falling
#2. To: lucysmom, *Ron Paul for President* (#1)
(Edited)
So then "drill baby, drill" isn't the answer to high oil prices?
"We (government) need to do a lot less, a lot sooner" ~Ron Paul
#3. To: lucysmom (#1)
So then "drill baby, drill" isn't the answer to high oil prices?
#4. To: mininggold (#3)
I guess the falling dollar only affects oil prices.
#5. To: lucysmom (#1)
So then "drill baby, drill" isn't the answer to high oil prices?
#6. To: Skip Intro (#5)
Of course not. Demand is way down, inventories are up, and refining is below peak levels.
#7. To: hondo68 (#2)
(Edited)
#8. To: All (#7)
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