Obama bails on gas prices

I’m tired of politicians passing the buck on this issue. Oil isn’t expensive, the dollar is cheap. If someone or something is forcing the Treasury and the Fed to devalue the dollar, then I would prefer if they came out and said it, instead of pretending it has nothing to do with them.

President Obama does not “accept responsibility” for high gas prices, his spokesman indicated today, arguing that Obama has done everything he could to bring down the price of oil and blaming the high gas prices on oil price increases caused by global factors.

http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/obama-doesnt-accept-responsibility-gas-prices/388946



Discuss

14 Comments . Leave a comment below.
  1. Well, what's your suggestion?

    This kind of sniping isn’t helpful. He HAS advocated more drilling; attacking Iran as some want will just drive them up further.

    PS: I don’t trust the Examiner any farther than I can throw it.

    • No simple solution

      I can explain where we are any why there is no simple solution:

      1. 20th century government overpromises on entitlements and revenue cuts
      2. …..
      3. Federal Reserve has to devalue the dollar to inflate away the promises.
      4. Prices of commodities and physical capital go up first
      5. The present
      6. The future: prices of intellectual capital go up, and salaries catch up to the new price of commodities.

      What happens in step 2 is what all the economists argue about, but it’s really just everybody holding a different part of the elephant. Liberals say it’s the decline of unions or ten other things, conservatives say it’s something else blah blah blah. Nobody concentrating on their little corner can ever stop the elephant stamping all over us.

      How we get from step 5 to step 6 will take all the leadership, because somebody’s ox is going to get gored. The oil people and the farm people are feeling pretty good right now, while the intellectual capital people are hurting. The balance is going to have to be restored, either by revaluing the dollar (which will destroy all the people who made contracts under the new value) or fixing the dollar against gold and making every effort to help salaries and wages catch up. This will mean $6 gas but our salaries would rise 6x what they were in 2000. The tax brackets would have to be completely indexed so we’re not raising income taxes.

  2. Dollar

    The dollar is cheap because people want to own dollars.

  3. Gas prices are not Obama’s fault.

    Presidents can be tarred with them, but they have little control over them. That’s the great thing about using them as a political weapon.

    Your facts, however, as well as your reasoning, are flawed here:

    Oil prices have been climbing since October and there were spikes this month: WTI Crude has spiked $10 a barrel this month. Brent crude oil has spiked $15 dollars a month. That’s a 10% increase in prices over the last month.

    Why the spike? Maybe speculation, but more likely causes are Europe’s severe cold snap and fears that Iran would halt exports to the European Union in advance of the EU’s embargo set for July… Clashes in Nigeria are also worrying investors about potential supply disruptions after a Sunday attack on a pipeline belonging to Italy’s Eni and Tuesday’s bombing of an army barracks.

    As Phil Flynn, a senior market analyst at PFGBest Research in Chicago is quoted as saying for the Chicago Tribune:

    “We’re seeing panic buying in Europe and Asia because they’re absolutely convinced that they’re not going to be able to buy Iranian oil or there’s going to be some kind of conflict that disrupts the transport of oil through the Strait of Hormuz,” said Phil Flynn, a senior market analyst at PFGBest Research in Chicago. “Obviously, there are other things such as Greece (and the effect of its latest bailout on European demand). But at the end of the day, really, this is an Iran risk premium being put into the price.”

    If Iran, not exactly known for its eagerness to compromise on, well, anything, were to acquiesce to international pressure concerning its nuclear program, the price of oil likely will collapse, according to Flynn. But “there is a lot of hoarding in case the worst-case scenario happens,” he said. “Asian buyers have been buying up West African crude like it’s going out of style.”

    Obama, of course, has nothing to do with the weak dollar, which is a result of the FED and investor confidence in the U.S. dollar. The weak dollar is also good for exports, which brings money into the United States. If that weakness were caused by inflation, then it might, but right now, a weak dollar is economically preferable to a strong dollar. I don’t think there’s much debate about the value of a weak dollar right now:

    “The dollar is going to go down,” Martin Feldstein, a Harvard University professor who was chief economic adviser to President Ronald Reagan, said Oct. 7 in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene. “It will cause Americans to shift from imported goods into domestic services. All of that will strengthen the economy.”

    The trade gap widened 8.8 percent in August to $46.3 billion. Imports from China climbed to a record $35.3 billion in August, pushing the trade shortfall with the Asian nation to $28 billion, the highest since comparable data began in 1992.

    • Mark, here is why oil goes up

      When the dollar is weakened, then these momentary supply interruptions and market disruptions seem to create permanent upward change in prices. This happened after the 1973 oil shock. Even though the Arabs did not succeed in controlling the oil supply, the effect of delinking the dollar from gold and ‘printing’ billions of dollars was that the price increases of 1973 became permanent.

      I think our oil price will keep trying to move up as the economy improves and demand comes back. But higher energy prices are the worst thing that could happen to the middle class and without accompanying moves up in salary and wages will lead to falling living standards as people have to pay more for gas.

      It will be a ratchety and unpredictable effect but at the end of it, prices will have gone up without any real advance in productivity (certainly the gas will be no better than it was before.)

      • WSJ on oil prices

        Mr. Obama yesterday blamed rising demand from the likes of Brazil and China, and there is something to that as well. But this energy demand is also not new, and if anything Chinese and Brazilian economic growth has been slowing in recent months.

        Another suspect—one Mr. Obama doesn’t like to mention—is U.S. monetary policy. Oil is traded in dollars, and its price therefore rises when the value of the dollar falls, all else being equal. The Federal Reserve throughout Mr. Obama’s term has pursued the easiest monetary policy in modern times, expressly to revive the housing market. It has done so with the private support and urging of the White House and through Mr. Obama’s appointees who are now a majority on the Fed’s Board of Governors.

        Oil staged its last price surge along with other commodity prices when the Fed revved up its second burst of “quantitative easing” in 2010-2011. Prices stabilized when QE2 ended. But in recent months the Fed has again signaled its commitment to near-zero interest rates first through 2013, and recently through 2014. Commodity prices, including oil, have since begun another surge, and hedge funds have begun to bet on commodity plays again. John Paulson says he’s betting on gold, the ultimate hedge against a falling dollar.

        Fed officials and Mr. Obama want to take credit for easy money if stock-market and housing prices rise, but then deny any responsibility if commodity prices rise too, causing food and energy prices to soar for consumers. They can’t have it both ways, as not-so-stupid Americans intuitively understand when they buy groceries or gas. This is the double-edged sword of an economic recovery “built to last” on easy money rather than on sound fiscal and regulatory policies.

        http://online.wsj.com/article/SB10001424052970203918304577241623995642182.html?mod=opinion_newsreel

        • I'll get back to you.

          I need to do some reading.

        • I thank Mr. Lynne

          for saying what I would say about the WSJ opinion page. Those guys are as undependable as they are nuts. But I didn’t want to dismiss your argument out of hand. It is true that oil is traded in dollars.

          The Wild Men of Wall Street say, “Oil is traded in dollars, and its price therefore rises when the value of the dollar falls, all else being equal.” Is all else equal? Prices are not decided by suppliers; they are decided by the oil futures market. And the market is worried. The Financial Times is reporting on its front page:

          A spike in geopolitical tensions after an International Atomic Energy Agency report on Iran’s nuclear ambitions propelled Brent crude to fresh nine-month highs of $124.62 a barrel in late European trading, a gain of 1 per cent.

          The WSJ wants to tie oil prices fluctuations to the value of the dollar. There may be a correlation, but that’s not causation. Furthermore, the dollar has been where it is for a long time now and we’re now experiencing a dramatic spike in prices. And as Investopedia says, “During the first five months of 2008, the price of crude oil was up 20%, the commodity index was up 18%, the metals index was up 24% and the food price index was up 18%, while the dollar depreciated 6%.” The WSJ is cherry-picking its data. I lost my source that said oil prices have increased far out of proportion to the fall in the dollar, but you can probably figure that out if you find graphs of the two. If the WSJ’s premise was right, one would expect the two to track more closely and for the market to increase the price of oil by 85% when the value of the dollar fell by 10%.

          The WSJ doesn’t like Obama and the investment sector, which doesn’t export, does not like a weak dollar. A serious editorial would balance the costs and benefits of a weak dollar, but again we’re talking about the WSJ editors.

          • horse water drink

            guess not.

            • Change water

              to Kool Aid, I think you have the complete picture.

              I was trying to argue with you honestly, but I guess you’re done with that?

            • Okay, I think you're right.

              The WSJ confused me because it was, quite frankly, not clear about how the weak dollar affected oil prices.

              Since then, I’ve found that the weak dollar can send investors into the commodities market, increasing demand, and driving up the price. And because oil is traded in dollars, it’s cheaper for stronger currencies to buy more. This increased demand drives up prices. And when there are worries about supply due to Iran etc., it’s easier for those countries to buy more oil.

              I finally found the info at Reuters:

              A weaker greenback renders dollar-denominated assets such as crude cheaper for holders of other currencies. The dollar index was down 0.48 percent, after slipping to five-week lows in the session.

              “An easy money policy should ultimately result in helping the U.S. economy to continue to recover and start a more accelerated growth pattern,” Dominick Chirichella of New York’s Energy Management Institute wrote in a note.

              But other analysts warned that the last round of quantitative easing was matched by a surge in oil prices, which could impinge on demand as the euro zone continues to struggle.

              Brent prices surged by around 30 percent between November 3 2010 and June 30 2011, during the second round of quantitative easing by the Fed, or QE2.

              “On the one side, you can argue that QE can bring additional liquidity and support to the market, but (oil) at those price levels would result in demand destruction,” Petromatrix’s Olivier Jakob said.

« Blue Mass Group Front Page

Add Your Comments

You must be logged in to post a comment.

Fri 31 Oct 11:35 AM