Gasoline Prices--Part II

I overlooked what is possibly the most important thing to consider when discussing the price of a commodity in a given currency: the value of the currency itself... A contributing factor in the rise in the price of oil and gasoline and energy in general is the fall in the value of the dollar.

The inner workings of the economy are purposefully shrouded in semi-secrecy and confusing language. For instance, when you hear some economist talking about "Monetization of the Debt," do you have any idea what that means? How about "Exporting Inflation?" Until recently, I had no understanding of these concepts, though I'd heard them before...

Monetizing the debt simply means printing more money. Or in the modern world, electronically creating deposits in the US Treasury accounts. Or to put it even more simply--inflation. Devaluing the currency. When you introduce more currency into the market, it debases the value of the currency that is already there. Monetizing the debt is happening in LARGE quantities. Much of which we will no longer be able to accurately track as the Federal Reserve has discontinued the M3 Index. We print or electronically create more money, and our own government uses it to pay its debts. The dollar's status as the world's reserve currency (thanks to the US monetary hegemony) allows us to run up debt and then pay the interest on that debt by... creating more money... Making the value of that money smaller and smaller.

Exporting inflation is when foreign countries buy US Government Bonds or US Federal Reserve notes themselves. When the IMF and World Bank (now headed by Neo-con elitist Paul Wolfowitz) issue loans to foreign countries to help them out of financial hard times, this is exporting inflation. We have created more money and put it into the world economy, we simply haven't put it directly into the US economy, so the US inflation rates are not affected. But the purchasing power of the dollar is definitely affected, as most of the goods that we consume are produced internationally--not domestically. And if there are more of our dollars on the world market, each one of them is worth that much less, since we have a highly negative net trade balance with the rest of the world...

Both of these things above lead to the debasement of our currency. And they are both happening with GREAT frequency and in GREAT quantities.

Before the M3 Index was discontinued on March 23, there was about $10 trillion publicly in circulation in some form in the world. In 1996, there was just about $4 trillion publicly in circulation. That is an annual inflation rate of about 10%. In just 10 years, we more than doubled the amount of dollars that exist (either in physical Federal Reserve notes or in electronic bank transactions). What does this do to the dollars that you and I own? It makes them less valuable.

And look at the price of gold in recent times: click for chart. Is gold getting more valuable? No. Currencies are getting less valuable.

So why is gasoline getting more expensive? Part of the reason is that currencies themselves (especially the US Dollar) are getting less valuable... "Back in the day" when the dollar was backed by silver (one dollar = one ounce of silver), you could go down to the local filling station and hand them a dollar and you'd get about 4 gallons of gas in return. Today, our dollars are no longer backed by silver. If you go down to your gas station today and hand them a dollar, you will get about 1/3 of a gallon instead of 4. One ounce of silver today? Worth over $12... The same amount of silver still gets you the same amount of gasoline. The gasoline is not more expensive, the dollar just buys less...

So don't be so quick to jump on the "big oil is evil" bandwagon. Yes, they probably are all a bunch of evil shape-shifting lizard-people who want nothing other than to feed on the blood of your children... But as for gasoline prices in the real world... Consider the EPA. And consider the currency with which you are buying the gasoline...

Why Are Gasoline Prices Going Up?

Damn those big oil companies, gouging us for every last penny at the pump! Well... They are... But you might be surprised to hear that it's the EPA that is largely responsible for the gas price crunch. How?

In 1979, the EPA began to use a chemical called MTBE in our gasoline in order to make it burn cleaner and pollute the air less. In 1990, to fulfill the requirements set by Congress' Clean Air Act, they bumped up the amount of MTBE in our gasoline. And as far as cleaning the air up is concerned, MTBE works! Just what'd you'd expect from those "crazy liberals" over at the EPA--they had a plan to clean up the air and by golly they did it!

Here's the kicker--MTBE has been found in drinking water all over the place and it is a carcinogen. "Oh, it won't kill you that much..." the EPA says... The EPA should have perhaps done some more thorough tests before they decided to saturate us and out gasoline with MTBE. They cleaned up our air, but polluted our water... Robbing Peter to pay Paul, anyone?

So now they are phasing out the use of MTBE as a gasoline additive. They will be replacing it with Ethanol, which oxygenates gasoline and makes it burn cleaner. Why they don't use Acetone is beyond me... But anyway... What this will do it require that refineries do not use MTBE, and instead use Ethanol. We simply don't have enough Ethanol to create enough gasoline this way. So there will be a supply crunch. Google search for MTBE + gasoline + stock.

In addition to the MTBE-phase-out induced supply crunch, refinery capacity itself is limited by the EPA. Due to environmental restrictions set by the EPA, no new refineries have been built for the past 3 decades. Instead existing refineries have had to handle the extra load created by our increased demand for gasoline and other refined products. And they are operating at or near full capacity, and have been for years. Refining oil has never been a very profitable business. Refineries are basically the middlemen, and can only mark up their products so much... And the EPA has made it very difficult for them to do business, imposing regulations up the wazoo. Of course these regulations are meant to protect you and me, but we saw how good they did with MTBE...

When hurricane Katrina knocked out some refineries in the Gulf, gas prices shot up overnight and stayed high until the IEA told Europe to release 2mbpd (including refined products) to the US... We literally use gasoline as fast as we can make it... And that puts the market in a very tenuous position. So any disruption in the supply side (like phasing out MTBE) or increase in the demand side (like the summer driving season) will affect prices. And when both of these things happen simultaneously... Well... Prices may well top $4 per gallon this summer. Bush said he would release some oil from the SPR (a very modest amount). This had a small effect on oil prices, but doesn't do a thing to help refinery capacities...

So the EPA is looking like quite the culprit here. And I'll bet you're shocked that I would be trying to deflect the blame from big oil, but allow me to don my tinfoil hat and you will see how they are actually orchestrating the whole thing. Of course I can't prove this, and if I could I'd likely disappear rather quickly. The EPA is a government agency. And (here's the crazy part) the government is more or less a business agency. So if the oil lobby were to say "Hey EPA, we need more refineries, make it happen," it would magically happen. But they have not said this. Why? Because they have us exactly where they want us. Everyone is casting the blame at them, but of course all of the intelligent people know the EPA is to blame, so they're not worried.

In the mean time, Americans are totally addicted to their products. We see gasoline consumption as an integral part of our way of life, and we would rather believe in stupid hoaxes like this rather than realize that if we all just scaled back our usage, demand would go down, the supply crunch would be over, and high prices would ease up... But as Americans are addicted to their cars like crack rock, prices are going up and up and they will continue to do so. And big oil likes it that way, and they have engineered it to be that way. There IS a supply crunch and it IS due to EPA messups and regulations, but if big oil wanted it changed, it would be changed. They have one of the most powerful lobbies in the world.

Things are they way they are because that is they way big oil wants it. And until a majority of the people say "We are sick of this crap," and decide to start walking more, biking more, and/or using public transportation more--nothing is going to change.

Some Thoughts on Iraq

Iraq is not really a country. It is a piece of land with arbitrary borders that contains three separate groups of people with different beliefs and different values. Sunnis, Shiites, and Kurds... They have always resented having to accept one government for all three groups. They do not want the "democracy" that the US is trying to install there. Sure, there are people who live there that identify as Iraqi before they identify as Sunni, Shiite, or Kurd. But the civil war that is being fought there currently is atributable to the fact that many of them are sick and tired of having one nationality forced upon three different groups of people. Saddam enforced a dictatorial rule. The US installed "democracy" attempts to have the three groups share dictatorial rule. But the reason there is still violence in Iraq (other than that which is instigated by US presence) is because these three groups of people do not want to live under one government. And certainly not under pressure from a fourth group that has no stake in their lives but seeks to profit from military and oil company involvement in their "country."

Abolish the Federal Reserve System

For now, a link. Later I will provide some commentary...

A Talk by Edward Griffin, Author of The Creature from Jekyll Island

Introduction:
Mr. Griffin is a graduate of the University of Michigan where he majored in Speech Communication. He is the recipient of the Telly Award for Excellence in TV Production. He is the founder of the Cancer Cure Foundation and has served on the board of directors of the National Health Federation and the International Association of Cancer Victims and Friends. He is a contributing editor for the New American Magazine and is President of American Media, a publishing and video production company in southern California.

http://www.bigeye.com/griffin.htm

Editor's Note: Despite how intensely interesting I find the content of this link, I take no responsibility for said content for am I vouching that any of it is "true". I've read that Mr. Griffin is also a gold dealer, so take this with a grain of salt as to his own intentions.