06 January 2008

This graph is IMPORTANT to understand...

...if you want to know why you are paying $3.00+ for a gallon of gasoline that only cost $2.00 three years ago. The graph was published in the Wall Street Journal on January 4 (text of the article reprinted in the Common Sense Forecaster blog this morning).

Yes, there is a greater worldwide demand for oil/gas now, but the main problem is NOT, as John Edwards suggested in the Democratic debate, because oil companies are greedy, and NOT, as some catastrophists have suggested, because we have hit "peak oil" and will run out soon. The problem is that the purchasing power of the U.S. dollar is plummeting.

Note from the graph that the cost of oil for people buying it with Euros is only about half what the increase has been for us. And if one were to buy oil with gold, the price would be unchanged from 7 years ago. The falling dollar affects more than just imported oil; as the WSJ article says, "On Wednesday alone the price of wheat and soybeans increased 3.4% and 2.8%, respectively. That follows a 75% increase in their price in 2007 -- which ran ahead of the oil price, which gained a mere 57% for the year. Neither OPEC nor China caused food commodity prices to rise like this. The main culprit here is a global loss of confidence in Federal Reserve policy and the dollar."

This fact (and this graph) were cited by Ron Paul last night in the Republican debate in New Hampshire. (He is the ranking member of the House Banking Committee and has been crusading for years for stricter monetary policy). None of the other candidates in the debate understood what he was talking about.

This isn't likely to improve any time soon. It's a scary situation. Read more about it in the article here (there's no sublink, so scroll down to where the graph is).

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...