You want cheap gas?

[Winslowalrob]

About 50% of the rise in gas prices is due to the dropping dollar. Boom, thats the gist of it. Yes, mickey mouse economics WILL screw up your country, though god-forbid anyone take any responsibility for this mess. Some theorize that our monetary policy was designed to devalue the dollar so as to increase American exports... which would make sense if you were retarded. Drilling oil in the US will not affect gas prices until the next two elections, so if your wallets are really hurting, I suggest you write to your local elected official and tell them to strengthen the dollar pronto. Indeed, any increase in domestic gas production will be offset by our delightful inflation, so please keep that in mind when blaming whomever's fault it is that we cannot drill for local oil. The lack of discussion on fiscal policy points to just how stupid ass American leaders and its media really are, on the left, right, and center. If rich Europeans are touring your country, rest assured that your country has some weak-ass currency.

[Springfield]

While I agree that the weak dollar has a lot to do with the price of gas. I don't agree it's as simple as just writing your local elected official, in fact I think they have very little to do with it. I think the housing bust has much more to do with the weak dollar than any elected official.

[Winslowalrob]

While I agree that the weak dollar has a lot to do with the price of gas. I don't agree it's as simple as just writing your local elected official, in fact I think they have very little to do with it. I think the housing bust has much more to do with the weak dollar than any elected official.

Well a lot of it has to do with interest rates, housing, and other stuff that I am too stupid to figure out without a big ol' textbook sitting on my lap. Elected officials SHOULD be able to pressure to the Fed into settin the interests rates in a way that will improve international confidence (and therefore strength) back into the dollar.

[Springfield]

Well a lot of it has to do with interest rates, housing, and other stuff that I am too stupid to figure out without a big ol' textbook sitting on my lap. Elected officials SHOULD be able to pressure to the Fed into settin the interests rates in a way that will improve international confidence (and therefore strength) back into the dollar.

I'd rather let the FED do whatever it feels necessary to keep this country from going into a depression. I'd rather not have any publicly elected official tell the FED how to do their job. The economy is one area (among many) where I'd rather not have meddling by the politicians.

I'm not an economist or anything. I've taken some courses in college, which basically taught me to avoid governmental meddling in the economy. The FED knows whats best for the dollar, our publicly elected officials don't.

[FanboyOf91]

In order to strengthen the dollar, the Fed has to raise interest rates.

Raising interest rates = bye bye, stock market (and probably what's left of the housing market).

[Winslowalrob]

In order to strengthen the dollar, the Fed has to raise interest rates.

Raising interest rates = bye bye, stock market (and probably what's left of the housing market).

Exactly, the Fed SHOULD be raising interests rates, our housing market was built on smoke and mirrors anyways.

[Springfield]

Exactly, the Fed SHOULD be raising interests rates, our housing market was built on smoke and mirrors anyways.

Raising the rates will discourage people from investing. People will make less money. The stock market will tank and people will pull their investments out. People will lose their homes.

We have to take care of our people here at home before we worry about the dollar abroad.

[joeknows]

About 50% of the rise in gas prices is due to the dropping dollar. Boom, thats the gist of it. Yes, mickey mouse economics WILL screw up your country, though god-forbid anyone take any responsibility for this mess. Some theorize that our monetary policy was designed to devalue the dollar so as to increase American exports... which would make sense if you were retarded. Drilling oil in the US will not affect gas prices until the next two elections, so if your wallets are really hurting, I suggest you write to your local elected official and tell them to strengthen the dollar pronto. Indeed, any increase in domestic gas production will be offset by our delightful inflation, so please keep that in mind when blaming whomever's fault it is that we cannot drill for local oil. The lack of discussion on fiscal policy points to just how stupid ass American leaders and its media really are, on the left, right, and center. If rich Europeans are touring your country, rest assured that your country has some weak-ass currency.

i agree the price of gas is dictated by our weak dollar but i think the dollar is being weakened because of our debts .... primarily to china.....

face it yall........ we have been sold to the highest bidder......... i say you might want to start learning chinese

[MDRedskinsFan]

Raising the rates will discourage people from investing. People will make less money. The stock market will tank and people will pull their investments out. People will lose their homes.

We have to take care of our people here at home before we worry about the dollar abroad.

Agreed.

The FED is fighting inflation and a potential recession at the same time. You can only fight one battle at a time. It is well known that the easiest one to fight first is the recession, which is what we're doing. After all, what's the point in fighting inflation if you don't have an economy worth investing in? Until most people get back on their feet, we will continue to see high prices and a weak dollar. When the FED deems economic growth safe enough to proceed with fighting inflation, they will do so. People are already struggling, so by raising interest rates we just worsen things. The good news, is that barring a major setback, we are seeing the lowest point in interest rates now, and they should be able to begin raising them by the 4th quarter 2008.

[Thiebear]

Wait: did you just say we should screw people out of their homes with high interest rates so gas will be cheaper?

So that when were living in the cars we can keep the A/C on?

[SkinsHokieFan]

The Fed's primary responsibility is to fight inflation and prevent the value of the dollar from falling such as it has over the past few years

They can't magically make our economy go up up up.

Bernake needs to remember that

[Kosher Ham]

I thought all I needed was a bowl of Ben's Chili.

Back to the drawing board I guess...

[twa]

Wouldn't taking away the approx 500 billion a yr we send overseas for oil strengthen the dollar?...How could it not?

It certainly effects the trade deficit and infuses money domestically.

OOPs my bad ,it's 600 Billion now

At current prices, the U.S. will spend $600 billion over the next year on foreign oil — an amount only slightly less than our $700 billion trade deficit.

http://www.investors.com/editorial/IBDArticles.asp?artsec=5&issue=20080618

[Burgold]

Well, one of the harshest critics of the Bush economic plan is Alan Greenspan. And Bernanke certainly doesn't have the gravitas or respect that Greenspan did. They did intentionally want to weaken the dollar. And they were successful. For most of my life you could go to Canada and save a couple of bucks in the exchange. Now, the Canadian dollar is worth a third more than the American dollar.

Pick your poison, economically over the last eight years, we've done it wrong.

[Fifty Gut]

Some theorize that our monetary policy was designed to devalue the dollar so as to increase American exports... which would make sense if you were retarded.

Care to explain how that's "retarded"? I work for an exporter and that's exactly what has happened. Exports have doubled in the last year. Europeans can't buy enough from America. China is pissed (the irony) that we are purposely devaluing our currency to slowdown our trade deficit with them.

[techboy]

About 50% of the rise in gas prices is due to the dropping dollar. Boom, thats the gist of it.

Not so fast (and not nearly so simple)...

From Oil and the Dollar, by James Hamilton, Professor of Economics at the University of California, San Diego:

The depreciation of the dollar has certainly been the focus of much discussion by reasonable people recently. And if reasonable people are talking about it, then unreasonable people will also be talking about it. But if you believe that the falling dollar is the explanation for why oil prices are going up, then maybe you also think that Osama Bin Laden's real mission is to reverse global warming.

and

I can't improve on Mish's analysis:

"Before continuing, it is clear that this basket of currencies deserves a name. I propose we call it the WHISIT. This stands for "What the Hell Is It?" But the name does not really matter. If you have a better one, please send it my way.

Regardless of what the basket is called, politics is ruling over sanity.

No one ever buys anything in a basket of currencies. For example, go to the store and try and buy a loaf of bread in WHISITs. It can't be done. Nor can one buy gas in WHISITs, or for that matter anything else. The same holds true in Europe. I defy anyone to buy anything anywhere in a basket of currencies regardless of what that basket is called. The only way it can be done is by exchanging everything in the basket to the local (favored) currency. What a headache for those walking around with Swiss Francs in their pocket trying to buy a loaf of bread in the US."

The currency in which oil exporters hold their assets matters a great deal. The currency in which the price of oil is quoted matters substantially less. And the latest economic insights offered to the world press by Ahmadinejad and Chavez are to me worth substantially less than those much-maligned pieces of green paper with George Washington's picture on them.

For a more indepth treatment, try:

Does Dollar Weakness 'Cause' High Oil Prices?.

I won't quote the nearly mind-numbing statistical analysis, but the short answer is no.

And here is something from a couple of weeks ago.

What the figure highlights is that while USD weakness is associated with higher dollar prices for oil, upward trends in all prices are evident. The wedge between the dollar increase and the SDR increase since January 2008 to 6/6 is only 2.8% (in log terms; 4.2% in level terms). It's a bit bigger for the dollar/euro comparison, at 6.7% (in log terms; 9.6% in level terms)

So the dollar's exchange rate "matters" (keeping in mind two-way causality), but for the bulk of the movement in oil prices, look here.

Correlation and association are not causality, and as is usually the case, it's really complicated.

[JohnLockesGhost]

The Fed's primary responsibility is to fight inflation and prevent the value of the dollar from falling such as it has over the past few years

They can't magically make our economy go up up up.

Bernake needs to remember that

Amen, brother.

The FED should keep its eye on the ball. Provide a stable monetary unit. It's failed at this because it's busy giving the politicians what they want to finance a war that's draining us.

[MDRedskinsFan]

Amen, brother.

The FED should keep its eye on the ball. Provide a stable monetary unit. It's failed at this because it's busy giving the politicians what they want to finance a war that's draining us.

I don't see how the FED is responsible for enabling our government to conduct a war.

You are correct in their responsiblility to provide a stable monetary value. However, their other job is to balance that need with the need for stable economic growth. When the economy isn't growing, the only choice the FED has is to stimulate it. If a weakening economy coincides with rising inflation, fight the weakening economy first, because fighting inflation during weak economic conditions will have an even further negative effect on the economy.

The point of contractionary monetary policy, is to curb spending by raising interest rates. How can you curb spending when there isn't much going on to begin with? It will only weaken the economy further. That makes no sense...

[Winslowalrob]

Not so fast (and not nearly so simple)...

From Oil and the Dollar, by James Hamilton, Professor of Economics at the University of California, San Diego:

and

For a more indepth treatment, try:

Does Dollar Weakness 'Cause' High Oil Prices?.

I won't quote the nearly mind-numbing statistical analysis, but the short answer is no.

And here is something from a couple of weeks ago.

Correlation and association are not causality, and as is usually the case, it's really complicated.

Ask the kids would say, you p0wned me with that. Imma get my own economist to back me up!

And thank you SkinsHokie for recognizing what the Fed SHOULD be doing. Guys, if there is a war going on, and taxes are not being raised to support it, then the government is screwing around to try and finance it.

[The Sisko]

Wait: did you just say we should screw people out of their homes with high interest rates so gas will be cheaper?

So that when were living in the cars we can keep the A/C on?

Classic. :laugh: :laugh: :laugh: :laugh:

[The Sisko]

Not so fast (and not nearly so simple)...

From Oil and the Dollar, by James Hamilton, Professor of Economics at the University of California, San Diego:.

One response to the article above...

I blame the whole situation on developing nations for not being as far behind in development anymore and would ask they cut back on industry and consumerism. As a US citizen, I demand the right to the lowest cost of food, housing, and transportation so I have more surplus currency to spend on the most prestigious of those very same items, as well as frivolous iCrap.

Both pithy and true. The true reason for high oil prices is increased global demand...perhaps with a smidge of speculating thrown in as well. Period.

[Winslowalrob]

One response to the article above...

Both pithy and true. The true reason for high oil prices is increased global demand...perhaps with a smidge of speculating thrown in as well. Period.

The global demand argument is whats being bandied around so that US policymakers do not have to shoulder any of the blame. Where, pray tell, is this global demand coming from? China and India? OECD sets the prices as well as speculation, and the prices are fixed on the dollar. Trust me, a lot of people in China and India are not rolling around in cars all of a sudden. Period .

[MDRedskinsFan]

The global demand argument is whats being bandied around so that US policymakers do not have to shoulder any of the blame. Where, pray tell, is this global demand coming from? China and India? OECD sets the prices as well as speculation, and the prices are fixed on the dollar. Trust me, a lot of people in China and India are not rolling around in cars all of a sudden. Period .

The reason you keep hearing the global demand argument, is because it's CORRECT! All you're doing is speculating against commonly known economic principles.

You're right, folks in China and India didn't all of a sudden start rolling around in cars. They started in the mid to late 1990's when President Clinton enabled China and India to experience economic growth. Don't get me wrong, President Clinton was great for the global economy, but terrible for the domestic economy. It's been shown before that oil prices take a little while to catch up to market demand, and what you're seeing is the price of oil based on demand from years ago. Maybe if you actually paid attention to economic developments over the past 10-15 years, and not what some conspiracy theorist who woke up a year ago told you, then you'd understand.

Also, it's OPEC that controls world oil market prices, not OECD. They do not set speculation, those are the individual decisions of investors who are hedging their bets against the dollar. It's well known that as the price of the dollar decreases, the price of oil increases.

[Winslowalrob]

The reason you keep hearing the global demand argument, is because it's CORRECT! All you're doing is speculating against commonly known economic principles.

You're right, folks in China and India didn't all of a sudden start rolling around in cars. They started in the mid to late 1990's when President Clinton enabled China and India to experience economic growth. Don't get me wrong, President Clinton was great for the global economy, but terrible for the domestic economy. It's been shown before that oil prices take a little while to catch up to market demand, and what you're seeing is the price of oil based on demand from years ago. Maybe if you actually paid attention to economic developments over the past 10-15 years, and not what some conspiracy theorist who woke up a year ago told you, then you'd understand.

Also, it's OPEC that controls world oil market prices, not OECD. They do not set speculation, those are the individual decisions of investors who are hedging their bets against the dollar. It's well known that as the price of the dollar decreases, the price of oil increases.

Dude, there are NOT that many drivers in China and India, and there are still not that many cars. Hell in China they still rock coal (hence the pollution). If you paid attention to international energy policies on the ground maybe you would know that. Most of the increased international demand stuff is basically disguised China and India bashing. But what do I know, I actually have been following this stuff for the past ten years and I lived in China.

http://economictimes.indiatimes.com/articleshow/msid-3112215,prtpage-1.cms

Oil and the seven myths

9 Jun, 2008, 0305 hrs IST,Ruchir Sharma,

It is one of the most powerful momentum markets in history. Across the globe, almost all stocks that have outperformed the benchmarks over the past year belong to the just one group.

Six out of the world’s 10 largest companies by market value are drawn from this sector. Pension plans and hedge funds have been pouring record sums of money into the space. Conversations around office water coolers and living rooms revolve around the same financial topic.

It is fashionable to throw about forecasts of much higher prices, which are already up 100% over the past year and are pasted on every other magazine cover.

So is this early 2000 or mid-2008? The parallels are indeed striking between the late stages of the tech mania and the current oil boom. Both mega trends were rooted in a powerful economic shift; while the tech boom was associated with several technological breakthroughs and new ‘killer applications’ for mass use, the oil-led commodity boom is attributed to the rapid industrialisation of emerging markets.

At some point, however, investor imagination begins to overstate reality. With oil prices doubling since mid-2007, without any major corresponding change in the supply-demand dynamic, there are now widespread signs that the myth has again transcended the truth.

While it’s hard to predict exactly when the deeply entrenched uptrend will reverse, it’s important to be fully aware that psychology rather than fundamentals is currently spurring oil prices. Here are some of the most popular misconceptions that come through in any discussion about oil.

Myth 1: The oil price surge is due to a drop in output growth. While there is some reason to be genuinely concerned about long-term supply constraints in oil, growth in production has not hit a wall as yet. Global oil supplies have been increasing 2% annually over the past five years and supply of crude is more than adequate to meet demand this year as well.

Still, the market is worried that the dependence on OPEC supply has recently been growing as estimates for North Sea and Russian crude production have been steadily declining. In addition, global spare capacity has fallen to 2% of production from a historical average of 3% to 5%. But this hardly justifies the doubling in oil prices over the past year. The last time prices rose at such a meteoric pace was in the 1970s when there were actual supply disruptions.

Myth 2: Emerging market demand is main determinant of oil prices. Unlike most other commodities, where China is indeed the price-setter, OECD demand is still the most relevant factor when it comes to oil. The US consumes 25% of global oil compared to 9% for China.

US oil demand has contracted by 5% so far this year, as demand destruction is in the works. While it is hard to get a fix on latest Chinese demand, growth in oil demand is unlikely to be as high as the 5% annual run-rate of the past five years, given the marginal slowdown in China’s economy.

Myth 3: Emerging market demand is price inelastic. For every commodity, demand destruction sets in at some point. In the 1960s and ’70s, the re-industrialisation of Japan and Europe propelled commodity prices higher, but at a certain juncture, the demand for commodities recoiled.

Copper consumption peaked at 0.45% of global economy in the mid-1960s while the demand for nickel started to fall in the 1970s after reaching 0.2% of global GDP. For the previous oil price boom, the breaking point was in late 1979 when the total spend on that commodity exceeded 7% of global GDP.

Over just the past ten years, the weight of oil in the global economy has moved from a low of 1.5% of GDP to over 7% of GDP again. The experience of the 1980s could be instructive in the current context as well. Even as Japan and Europe continued to grow strongly in the 1980s, oil consumption remained essentially flat through that decade as both the regions strived to achieve better fuel efficiency and switched to alternative sources of energy, such as nuclear power.

With governments in many emerging markets finally raising oil prices at the retail level this year, oil demand is bound to decrease. As a case in point, the Indonesian government is budgeting a 10% decline in volume growth for 2008 on the back of a 30% adjustment in oil prices.

Myth 4: Better standards of living in developing countries will only increase oil consumption. As the demand patterns of the 1980s show, when oil gets too expensive consumers look for different sources of energy and succeed in finding them. A similar move has been underway with nearly 90% of the growth since 2004 in new ‘oil’ capacity coming from bio-fuels, synthetic oil and natural gas liquids.

Furthermore, higher per capita incomes are often associated with greater energy efficiency and the increased urbanisation projected for emerging markets could even translate into lower per capita oil consumption with the greater use of mass transportation.

Myth 5: The tidal fund flow into oil and other commodity products will keep raising their prices in financial markets. Asset allocation into commodity funds has risen dramatically over the past year, with the total influx in the first quarter of 2008 exceeding the total inflow of 2007.

Many commentators argue that this trend has a long way to go as total allocation to commodity-related assets is still below 5% of total financial assets. Late last year, during the heady months of the emerging market boom, similar arguments were bandied about with regard to a potential re-rating of emerging markets stocks.

Yet, the reality is that while momentum can drive markets for a while, flows can quickly reverse once it becomes apparent that the underlying fundamentals are deteriorating; indeed this is the case with the Indian and Chinese equity markets this year. Even if pension plans keep increasing their strategic allocation to commodities, the process is likely to be gradual and spread over time.

Myth 6: Retail gasoline and diesel prices in emerging markets such as India are too low by global standards. The retail prices of petrol and diesel vary greatly across the world, reflecting the very different tax structures implemented by each country.

Venezuela reportedly sells gasoline at a mere 3 cents per litre while Turkey charges $2.80 for a litre. India’s latest price for petrol is in line with the global average, although it is lower by 30% for diesel. Still, at $0.85 per litre, India is selling diesel at a more expensive price than China.

The key difference between China and India is that the latter cannot afford to keep subsiding oil prices or further cutting taxes on oil products due to the large fiscal deficit. China doesn’t face the same compulsion to raise prices as it is running a fiscal surplus amounting to nearly 1% of GDP.

If the incumbent government had been more sensible in spending the revenue windfall from the runaway growth of the past four years, then it would be in a much better shape to absorb the global oil price shock.

[The Sisko]

The largest projected increase in energy demand is for the non-OECD region. Generally, countries outside the OECD3 have higher projected economic growth rates and more rapid population growth than the OECD nations. In the IEO2007 reference case, energy consumption in the non-OECD region is projected to grow at an average annual rate of 2.6 percent from 2004 through 2030. In the OECD region, where national economies are more mature and population growth is expected to be relatively slower, energy use is projected to grow at the much slower average rate of 0.8 percent per year over the projection period. Energy use in the non-OECD region is projected to surpass that in the OECD region by 2010, and to be 35 percent greater than the non-OECD total in 2030 (Figure 9).

Much of the growth in energy demand among the non-OECD economies occurs in non-OECD Asia, which includes China and India. Energy demand in the non-OECD Asia region is projected to grow at an average rate of 3.2 percent per year, more than doubling over the 2004 to 2030 period and accounting for more than 65 percent of the increase in energy use for the non-OECD region as a whole. In 2004, energy consumption in the countries of non-OECD Asia made up just over 48 percent of the non-OECD total; in 2030, its share is projected to be above 56 percent

http://www.eia.doe.gov/oiaf/ieo/world.html