Gas Prices! Who’s to blame?
In the first place, there are no simple answers to complex probems. Petroleum is scarce, in fact it’s a finite quantity in its supply. That being said, this is not like the energy crisis of the past. This is fundamentally an international political crisis and not an OPEC oil cartel action disrupting supply for economic gains or political posturing. So, we can’t really blame OPEC and the consortium of big-oil companies…but what the hell, why not? There’s plenty of blame to go around and we love to hate big-oil. As average citizens and consumers, we really really hate big-oil’s recent windfall profit fortunes, but when examined closely, using comparative industry-wide profiit margin studies, they aren’t really out of line at all. In fact, they come out on the low side of normal. The rub is that it’s awfully hard for the common man to imagine profits in the billions of dollars when you’re personally just barely keeping your nose above water and are maybe going down for the third time. But, the truth of the matter regardless of how unfair that it might seem, is that simple facts point to the phenomenon that big oil just happens to be in the right place, in the right business, and at the right time. Pragmatically speaking, you and I would no doubt, do the same in their place; which is to sit back and enjoy the benefits of our unexpected good fortune. That’s what being in business in this country and moreover, a free world, is supposed to be all about, is it not? We should all be so lucky.
We are now competing with a growing voracious world appetite for oil. China and India have become oil hungry and are competing with us on the open market for their fair share of this valuable resource. Curiously, as the authors of the free market strategy, we somehow find ourselves ill-prepared to deal with this competition; it’s a heretofore unknown area of our expertise and experience. Supplying our refineries with crude oil at bargain prices on mostly our terms to fuel our gas guzzler SUV’s and 400hp freeway cruisers, not to mention our electric power plants, the farm machinery that is responsible for our surplus food crops and the diesel-powered trucks to get our goods to the marketplace, is no longer a given. The ‘trickle down’ effect will soon strangle the common man at the bottom of the socio-economic ladder, who’s been unfairly robbed of his vision of the American dream and is now just trying to get by the best he can on cheap dollars and inflated prices.
The Middle East is unstable due largely to the Iraq war and the risk is factored into the world oil price. Our dollar is weak thus it takes more dollars to buy an international barrel of oil. In an effort to forestall a serious recession and further crises in derivative instruments, the Federal Reserve is pouring out liquidity that is financing speculation in oil futures contracts.
It is this speculation that is driving the price.
If we face the truth head-on, it can also argued that the real value of oil has always been set at artificially low rates due to the fact that it was relatively easy to find and explot. Rarity and scarcity of a finite resource should’ve market driven the price of oil to gold and diamond levels years ago. But, the world has acted like kids turned loose in a candy store, plundering the goods until they were on the verge of disappearing forever, with no thought or planning of what to do when that happened whatsoever. Incredibly, that blatant lack of foresight and obvious juvenile behavior would seem to be a mark of doing things ‘The American Way’.
Over the last five years, the U.S. dollar has lost about 32% of its value compared to the euro. The main driver of prices is the weak U.S. dollar and the linked subprime crisis in America; geopolitical tensions, and increased emphasis on U.S. bioethanol production which diverted production of diesel and led to shortages.
The dollar is weak because of large trade and budget deficits, the closing of which is beyond American political will. As abuse wears out the US dollar’s reserve currency role, sellers demand more dollars as a hedge against its declining exchange value and ultimate loss of reserve currency status.
So, how can the decline of the dollar be halted?
Other countries need to step up domestic consumption instead of exporting their goods to US markets under ridiculously lopsided favorable trade agreements. They have been lured into this addiction like school kids by the local crack cocaine dealer and one day soon the hand that has fed them will suddenly turn on them. It has no choice and they, like us, will have to face the stark reality that they are undeniably and absolutely hooked on a field of dreams that will choke the life out of them without regard due to their lack of intuitive foresight and planning for the inevitable.
The eurozone, in particular, has failed lamentably in the past few years to generate enough growth to take pressure off the US, and why should it? There was never a good argument presented for reasons to do business any other way. Domestic consumption also has to pick up in Asia. But the Bush administration also needs to rein in its budget and current trade imbalances and more importantly, admit that the Free Trade agreements we have signed on to these past few years have had a disastrous impact on our domestic economy and workplace. A pig is a pig is a pig.
But, if we want one bogeyman to blame for the high price of oil, look no further than the Bush/Cheney Iraq war machine which has destabilized the mid-east and in a domino effect, crashed the world’s economy. Follow if you will, the money-trail…it all leads back to this one spectacular event and the ‘criminal’ misdeeds of all concerned. This is horribly simplistic but it’s the best that can be offered under the present circumstances for a ‘feel good’ explanation of our current crisis.
I’m not old and wise enough to know for sure, but through my observations and studies, it has always stood out that this country has been basically reactionary. Oh, we claim to be the world’s trend setters and we are about the good things, but we have failed miserably to set good examples in any areas that have threatened our ‘good life’. To quote one of the greatest minstrel prophets of our time, Bob Dylan phrased it like this nearly fifty years ago:
“Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin‘.”
Sleep tight kiddee’s