Posted by: Debby Durkee | April 25, 2011

Why is gas so high?

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Why is gas so high?

Usually supply and demand are the causes of fluctuations in price for any product or commodity, but is that the case with gasoline? Is it as Obama says – the “speculators” that are causing oil prices (and therefore gas prices) to spike? This is from Steve McCann at the American Thinker.

…  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.”

Obama and company tend to blame “speculators” for the jump in oil prices, but is that really true?

…(speculators) 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…

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%.

The Fed’s balance sheet has ballooned to nearly $3 trillion over the past several years (from $825 billion in 2007) as it buys American Treasury bonds, and they bought these with printed money.

This has flooded the marketplace with US currency and driven up commodity prices (including oil) 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).  Snip –

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…

So, when you hear that the prices of oil and gasoline are out of the president’s control, you might remember who’s been over-spending and who’s been printing money. These policies affect a lot of other aspects of the economy, and it’s the American people who are affected at the gas pump. Read it all here: http://www.americanthinker.com/2011/04/gasoline_and_dollars_supply_an.html

Double speak – Obama’s spending binge.

This from the folks at Freedom Works who have noticed that although Obama is trying to capture the “getting our spending under control” rhetoric, he’s really just saying one thing and doing another. Are you surprised?

…President Obama’s February budget for the future called for spending of 25% of GDP.  Representative Paul Ryan’s recently passed House budget returns spending to 2007 levels, 19% of GDP.  President Obama’s counter to the House budget maintains spending at 22%, a historic high.

Please click here to see Ryan’s budget compared with Obama’s February budget and his revised budget: http://si.wsj.net/public/resources/images/ED-AN440A_taylo_G_20110421195302.jpg

(John Taylor of the Hoover Institute) politely explains the consequences of the House’s and the President’s proposals.

This means that the House budget plan… approximately balances the budget with no increase in taxes. This is good news for economic growth. In contrast, balancing the first or even the second Obama budget requires substantial tax increases—more than the administration has yet to propose.

This is a cogent example of deliberate obfuscation.  America deserves better.  Americans deserve a straight-forward presentation of the facts and consequences.

With spending out of control and the Fed printing money, which weakens our dollar and worries our allies around the world, we add to it an administration not serious about growing our economy by getting our financial picture in some semblance of order. Lip service to a problem does not solve it. Obama’s speech-making ability will not fix things.  http://www.freedomworks.org/blog/teda/double-speak-and-obamas-permanent-spending-binge

We’re spreading our wealth to other countries.

What are we doing? First we invest $2 billion in Brazil’s off-shore oil drilling company (a Soros company) while we strangle our off-shore drilling here and Cuba and China pursue drilling pretty close to Florida. If this isn’t crippling our country while we pay for others to get a leg up on us, I don’t know what is. This is from Doug Powers who blogs with Michelle Malkin.

…the US Government is planning to make a $2.84 billion loan in order to upgrade and expand an oil refinery. Normally I’d consider that a positive move toward energy independence, but since this particular refinery is in Cartagena, Colombia, I’ll curb my optimism.

Gas prices have been on a steady rise since the day Obama took the oath of office.

This is hardly a “spike”:

You can link to a chart following the price of gas over 36 months. That’s what Powers is referring to here:  http://www.GasBuddy.com/gb_retail_price_chart.aspx?city1=USA Average&city2=&city3=&crude=n&tme=36&units=us

Excuse me while I shake my head. Wake up, America. Our government is not our friend. Read it all here:

https://www.facebook.com/#!/notes/michelle-malkin/obama-no-silver-bullet-to-bring-down-the-price-of-gas/10150161873925677

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