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Posts Tagged ‘Energy Policy’

Guest post by Daniel Wilson.

United States gasoline prices are up over 13 percent since the start of the new year, standing at a national average of $3.92 a gallon. On a seasonal basis and in nominal terms, gas prices are the highest ever.

High and escalating gas prices have become a major political issue with numerous politicians and pundits in the media quickly coming to false conclusions on the issue.

One of the most common fallacies perpetrated by politicians on both sides of the aisle is that investors speculating in futures markets cause prices to rise and fluctuate dramatically.

Typically so, politicians have it backwards, speculators actually play a vital and important role in the economy. Speculators make markets more liquid by adding additional buyers and sellers, thus aiding transactions and improving efficiency. Also, speculators actually make markets less volatile. In order for speculators to make money they have to buy low and sell high. Buying at a low price, increases the low price, and selling at a high price, lowers the high price, causing the market price to have a lower variance in the long run.[1]

In addition, a recent study by the Federal Reserve Bank of Dallas demonstrated that speculators didn’t contribute to the run up in oil or gas prices over the last decade.[2]

Another common myth about gas prices is that the big oil companies control and manipulate prices upwards in the name of greed and corporate profits. This myth runs wild within the Democratic party, many of them have recently scolded the oil companies for price-fixing gas and oil to profit at the expense of everybody else. Oil companies control gas prices like grocery stores control cereal prices. Measured by profit margins, oil companies rank 114 out of 225 different industries.[3] Big oil companies, like Exxon Mobil only earn seven cents per gallon of gas. Compare that to the $.50 a gallon excise tax that’s embedded into the price of gas that local and federal governments collect.[4] In other words, governments are collecting seven times more in taxes than oil companies make per gallon of gas. So, the next time you fill up at a gas station, ask yourself, who’s actually greedy, big oil or big government?

One of the most conspicuous causes of higher oil and gas prices, that often goes ignored, is the depreciating value of the U.S. dollar on international exchange markets. People generally accept that individual prices go up or down based on changes in supply and demand. However, they fail to understand that the value of the dollar, in which goods are priced, is also determined by supply and demand. Therefore, when the Federal Reserve system prints excessive amounts of money for misguided political and economic reasons, the supply of US dollars increases, which then reduces the value of the dollar. Over the past 10 years the US dollar has lost 35 percent of its international exchange value. This means that commodities, such as oil, that are sold in international markets denominated in dollars, have to go up in price since the value of the dollar has fallen. To sum this up, when the value of the dollar falls from an increase in its supply, everything priced in dollars becomes more expensive, it’s called inflation.

Measured in Swiss francs, a strong currency, the price of oil has risen to a less extent. For example, since 2010 the price of oil has risen by 15 percent in Swiss francs, but 30 percent in US dollars.[5] Measured in terms of gold, which has historically been used as a monetary unit, oil prices are below their 40 year average.[6] Both of these measurements indicate that a large portion of higher gas prices are due to a falling U.S. dollar.

The Joint Economic Committee released a study showing that just a 10 to 15 percent appreciation in the dollar would lower gas prices by 43 cents.[7]

Politicians should stop wrongfully blaming big oil companies and speculators and worry about the real problem that threatens this country’s economic future and that’s the declining dollar. The resurgence of a strong greenback would lower gas and oil prices more than any other political solution.

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VC Note:  I’m pleased to share a guest post from Melody Scalley, a Virginia talk-show host and entrepreneur who resides on the Eastern Shore.

Image from gettyimages.com

Unless you have a high paying government job, and even if you do, you are probably well aware that the majority of American’s are deeply impacted by the ongoing devastation to the United States economy since President Obama took office.

While overall the unemployment rate hovers close to 9%, minority unemployment remains consistently near 15% and these figures show no indication of significant improvement in the near future.  Meanwhile, the current administrations lack of a positive Energy Policy is not only hamstringing companies that could add much needed AMERICAN JOBS to the economy; it is also compromising our long term national security and unnecessarily delaying our economic recovery.

The U.S. Energy Information Administration (EIA) recently released a report that shows the U.S. is on track to actually export a net increase in gasoline, diesel and other oil-based fuels in 2011 for the first time in 62 years.  This is due to the fact that while our economy is stalled, the economy in emerging markets is booming.  However these record exports are not forecast to continue.  EIA is also predicting domestic oil production will fall 240,000 barrels/day through 2012, mainly due to the continued Gulf “energy freeze” imposed by our current administration.

The United States has the highest standards for environmental protection in the free world.  Other countries do not endeavor to protect the environment for future generations as we do, yet their lack of concern for the environment will affect all of us.  We have the desire to be good stewards of the environment as well as the technology to extract our resources in a safe and efficient manner.  The U.S. also has the most stringent work place safety requirements of any nation.  We have the energy resources right here within our borders.  If President Obama wanted to put American’s back to work he has an entire industry waiting for the green light to help him turn around our economy.

I grew up in New Orleans and my Dad worked on the oil rigs.  I can attest first hand that oil industry jobs keep food on the table, the lights on and the rent paid.  If we simply used the God-given resources we have in our great Nation, many American’s would not be needlessly losing their homes and struggling to keep their lights on and their families fed.

We still import over half of our oil and petroleum products.  Instead of selling our debt to China we should be selling our OIL to China and reducing our national debt.  We do not lack the resources in America.  What we lack is leadership and the political will to demand our administration put forward an energy policy that is beneficial to Americans and the United States.  Let’s start the New Year on the right path.  It is time to resume drilling within American borders and stop exporting American jobs.

If you are interested in hearing more of Melody Scalley’s commentary, reports, and interviews, you can find her on the radio at WESR FM on Thursday from 6 PM to 9 PM or also by visiting her website, http://melodyscalley.com/.

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