USANews版 - Gasoline and Dollars: Supply and Demand |
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发帖数: 29846 | 1 By Steve McCann
Gasoline has exceeded or approached $5.00 per gallon in some parts of the
United States long before the normal peak travel season has begun. Already
the politicians, headline writers, and some cable and talk show pundits are
pointing to the usual suspects. But they have avoided or are unaware of
where the fault actually lies.
One of the foundational tenets of economics is what is known as the law of
supply and demand. Normally whenever a product or commodity is in short
supply the cost to acquire it increases; on the other hand, if there is a
glut on the market the price decreases. However, over the past three years,
thanks to the profligate fiscal policy of the Obama administration and the
Democrats in Congress combined with the money creating monetary policy of
the Federal Reserve, this law has been turned on its head.
There are two commodities deeply affected: the first is oil, which is a
basic modern day necessity; and the second is gold, which has always been a
safe haven against economic downturns that reflect this upside down world.
The fluctuations in the price of oil have been primarily demand-driven, and
to a lesser degree impacted by world conditions which is reflected in supply
. Since 2003 world oil production has maintained the following relationship
with global oil consumption.
Year Ratio Average Price per Barrel (adjusted for inflation)
2003 97.0% $38.66
2004 97.7% $39.87
2005 97.4% $48.29
2006
96.7% $69.94
2007 95.1% $65.74
2008 96.4% $88.40
2009
95.0% $87.60
Current 98.8% $110.00
Source: http://omrpublic.iea.org
As a general rule, the above table follows the anticipated supply and demand
equation (with slight variations due to political or weather instability
etc). That is until the present, where the correlation is completely thrown
out the window. Despite the ongoing stalemate in Libya and general unrest
in the Middle East, supply is keeping up with demand. This was underscored
by the Oil Minister of Saudi Arabia when he recently announced that the
Saudis were cutting production by 700,000 barrels per day due to "market
oversupply."
While it is always fashionable and populist to blame the "speculators" and
oil companies, those entities are fully aware of the supply situation and
would not be taking undue risk when a futures contract in that market
situation could easily backfire on them. But they are also aware that
another factor has come into play. That is the wholesale creation of money
by the Federal Reserve in response to the massive deficits run up by
Washington D.C. In reality these are quixotic attempts by both entities to
jump start the US economy. Their most significant accomplishment in doing
so is to enrich Wall Street and the huge financial institutions deemed "to
big to fail" at the expense of the American people.
Oil, as are all worldwide commodities, is denominated in US dollars. The
dollar is also the world's reserve currency. What happens in the corridors
of power on the banks of the Potomac has an immediate and potentially
devastating impact on the rest of the world.
Gold, which has been considered a safe haven and hedge against not only
inflation but the follies of an unrestrained government, reflects more
dramatically than any other commodity the effect of Federal Reserve policy.
During 2007 the average price of an ounce of gold was $695.00 an ounce. In
the past week the price has hit $1,509.00, more than double the 2007 price
or increased by a factor of 117%.
It is no coincidence that during this same period the Balance Sheet of the
Federal Reserve showed assets of $825 Billion throughout 2007; however today
it exceeds $2.7 Trillion, a phenomenal increase of 223% or more than triple
. Of the $1.8 Trillion increase is $1.4 Trillion of US Treasury debt that
the Fed bought and in essence printed money to do so. This has flooded the
marketplace with US currency and driven up commodity prices across the board
. Additionally this tsunami of greenbacks has created massive problems for
emerging countries as the influx of dollars looking for higher returns has
overwhelmed their economies, triggering inflation and currency and exchange
rate problems around the world.
The Fed, in league with the federal government, chose this course of action
in order to underwrite the ongoing crippling deficit by buying the bonds of
the US Treasury, which had to be offered as the result of fiscal policies
that were supposed to stimulate the economy. The Fed justified their
actions by claiming this program, also known as quantitative easing, would
make more money available for borrowing by the private sector. It has done
neither. Instead it has sown the seeds for stagflation (high unemployment
coupled with high inflation).
In the meantime the dollar has lost a considerable amount of value as
compared to other currencies. Among the most stable of currencies over the
years has been the Swiss franc. In 2007 the exchange rate was 1.22 francs
to the dollar; today it is 0.881 to the dollar a decrease of nearly 25%, a
drastic drop in the world of currency values. While it is nearly impossible
to accurately measure the true impact of currency devaluation and
acknowledging that there are always other factors at play, a simple exercise
using the Swiss franc and the US dollar relationship applied to the cost of
a barrel of oil today reveals that a cost of that oil would be $82.50
instead of $110.00; much more in line with historical patterns.
The fault for the nation's present predicament lies solely at the feet of
the federal government, from its spendthrift fiscal program and obstinate
refusal to develop America's vast oil reserves, to its Russian roulette
monetary policy. As for the evil "speculators," they are indeed speculating
on the future rise in the price of oil and gold, but not because of
traditional supply and demand factors, but because they are convinced that
there is no will in Washington to rein in spending, and that the Federal
Reserve will be forced to do another round of quantitative easing
exacerbating an already dire situation that can only end in disaster. |
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