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...
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...
posted by and i at 10:27 AM
4 Comments:
Very good ! It's all relative, unless the house of cards tumbles down!
The Federal Reserve is a central bank, and inflationary - as you pointed out. JFK wanted to abolish it. Could that be why.........?
Gary
THE JFK MYTH: Was he assassinated because he opposed the Fed? by G Edward Griffin. He doesn't seem to think Executive Order 11110 is what got JFK killed...
Dude,
Why would GWB stop the deposits into the strategic oil reserve? I'm sure there is a malevolent reason, but I can't figure it out.
i don't think it's malevolent. his handlers are just trying to make it seem as if his administration is doing all they can to help the consumer... it's certainly not going to help very much though... stopping the SPR deposits takes a little bit of pressure off of the crude oil price--but that effect is mostly psychological rather than a real effect of increasing supply. we're talking 66,000 barrels a day for a country that uses 21 million. the gasoline price crunch is not due to crude oil shortages. it is on the refinery side, not the crude side...
if the bush administration wanted to help the consumer they would mandate higher fuel economy standards. that would save hundreds of thousands of barrels every day...
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