Cheap money, expensive gas

The president complained this weekend of oil companies charging too much for gas. The corporations have more cause to complain of the president taking the charge out of money.

Expensive gas is a rational reaction to cheap money.

“The truth is: the price of gas depends on a lot of factors that are often beyond our control,” President Obama claimed in his weekly radio address. “Unrest in the Middle East can tighten global oil supply. Growing nations like China or India adding cars to the road increases demand. But one thing we should control is fraud and manipulation that can cause prices to spike even further.”

Don’t blame me. Speculators did it. Whenever a politician says, “the truth is,” chances are the truth isn’t. The “fraud and manipulation” spiking prices at the pump involves Washington, not Wall Street.

Beyond-our-control Barack wishes away the laws of supply and demand. The president hates markets because they give power to people rather than politicians. He frustrates the market’s demand for energy by denying a permit for the Keystone XL pipeline. He manipulates the market’s supply of energy by pouring billions into Solyndra, Evergreen Solar, and other now-bankrupt green-energy ventures. But to loosely paraphrase Woody Allen, the market wants what the market wants—and it’s Ford F-150s and not Chevy Volts.

Conservatives at least grasp how the supply and demand of the gasoline that the pump jockey injects into their cars influences its price. But they don’t always get how the supply and demand of the paper that they give to the service-station attendant influences price.

By any metric, the supply of money has increased dramatically since the financial crisis of 2008. This dollar depreciation has naturally inflated prices, particularly as the economy picks up and people spend that glut of greenbacks.

A gallon of gas cost $1.83 when Obama swore the presidential oath. It costs $3.84 now. The average price for a pound of cotton stood at 58 cents the month Obama took office. It hit $1.01 last month. Gold closed at $839.30 an ounce prior to Obama’s inauguration. Like black gold, actual gold has about doubled during the president’s term to $1,655.50.

Notice a pattern?

There are certainly variables specific to gold, cotton, and oil that affect price. But there is one common denominator: money. It takes more of our money to buy coffee, milk, meat, and so many other basic products because there is more money in circulation. Flood the market with silver, labor, bicycles, money, or any other valuable, and watch that valuable lose value.

A price-tag is a deficient barometer on which to gauge cost. Unlike a scale or a ruler, money fluctuates. It isn’t a static representation of the price of a commodity.

The Federal Reserve’s 100-year war on the currency has whittled the buck down to the purchasing power of 1913’s nickel. Strangely, we still call this depreciated note by the same name—a dollar—despite its very different value. This is something akin to a bartender serving a “pint” of beer in a shot glass. But if bartenders passed off ounces as a pints, imperial or otherwise, the government might imprison them for fraud. Alas, the government as a matter of practice manipulates the currency so dramatically that our dollars morph into spare change.

This wasn’t always so. A U.S. dollar was once as fixed a measure as a gallon of gas. An early Congress established a dollar as containing 371 and one-quarter grains of pure silver. As the Federal Reserve would later do with paper dollars, the Congress subsequently meddled with the metal. But it’s important to know that $5, like 6’2’’ or 12 lbs, once denoted a measure defined and stable. And when the Federal Reserve launched in 1913, a dollar from 1789 had lost only about a nickel of its value. Our dollar has the purchasing power of a 1913 nickel. Think on that.  

In his weekly radio address, Obama faulted “big oil companies… making more money than ever” and “traders” who “game the energy markets” for our service-station woes. We’ve heard the excuses before. Obama has pinned the underperforming economy on automated tellers, his predecessor, and a tsunami. Scapegoating speculators is just the latest instance of avoidance.

Policy decisions, like who the president appoints to the Federal Reserve, matter. Our currency is most dishonest when our presidents are most dishonest.

Oil prices haven’t exploded. The greenback has imploded. Petrol isn’t hard to come by. Money is easy. Gas isn’t expensive. The dollar is cheap.