The Weak Dollar is Increasing Gas Prices

Wednesday, March 21st, 2012 and is filed under Blog, Economy

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We often forget one of the most pernicious and regressive taxes on American consumers; inflation.  Thanks to the burgeoning national debt and the loose money policies of the Fed (near-zero interest rates and quantitative easing), our dollar is as weak as it’s ever been.  But you won’t hear Obama blame his monetary stimulus policies for exacerbating already-high gas prices.

The reason for the high gas prices is simple.  The global and American economies run on oil, and the supply of oil is not keeping up with the demand.  In the United States, we are barred from drilling for oil in numerous locations and we have not built an oil refinery in 35 years.  Moreover, government interventions in the market, such as the ethanol mandate, along with draconian EPA regulations on fuel blends and transportation restrictions, have raised the cost of bringing the final product to the pump.  Unfortunately, this is all old news.

Charles Kadlec of Forbes online puts forth a compelling argument that the weak dollar is also contributing significantly to the rise in oil prices.  Kadlec explains it like this:

Oil prices are up because the value of the dollar is down. Our common sense hides this source of higher prices because we view the dollar as fixed, and prices as moving. News reports explain the sharp rise in consumer prices in February were caused by higher energy and food prices, implying that higher prices cause inflation. Of course, higher prices do not cause inflation. Higher prices are inflation.

As a means of providing context, Kadlec compares the falling dollar to other currencies in order to illustrate how much the weak dollar is costing us at the pump.

For example, if the dollar since 2002 had been as good as the:

• Chinese yuan, the price of oil today would be $82 and a gallon of regular gas would cost about $3.10;

• Euro, the price of oil today would be $77 and regular gas would cost about $2.90;

• Japanese yen, the price of oil today would be $71 and regular gas would cost about $2.75;

• Swiss Franc, the price of oil today would be $63 and regular gas would cost about $2.50.

It’s amusing to watch how some discount the warnings of those like Kadlec by suggesting that the CPI does not show a sharp increase in inflation.  Well, inflation is not rocket science; it’s an increase in prices of goods and services, as reflected by the buying power of the dollar.  Let these supercilious wizards of smart tell American consumers that the prices on vital goods and services have not risen exponentially.  Call it whatever you want, but it is clearly reflective of a weak dollar.

It is clear that we are in serious need of reform at the Federal Reserve in order to strengthen our dollar.  They cannot be allowed to operate as an unelected fourth branch of government.  Kevin Brady (R-TX) is introducing the Sound Dollar Act (H.R. 4180), a bill that will reassert congressional control over the Fed and impose much-needed reforms.  Specifically, the bill repeals the Fed’s dual mandate to (unsuccessfully) tinker with economic growth and barres it from buying up mortgage securities and distorting the housing market.  We’ll be discussing this bill more in the coming days.

The weak dollar policies of this administration and the Keynesian statists should serve as a potent weapon for conservatives in the upcoming elections.  Let’s use it.