GAS PRICES AND MARKET MANIPULATION
President Obama and Washington are clueless
I recently celebrated my 45th birthday and can now officially talk like an old man about the way things use to be in the world and how things were so much better or different back then. Despite this sudden bolt of knowledge and wisdom there are some things that never change and after decades of watching gas prices fluctuate I can safely state with almost pure certainty that ten years from now when I turn 55 ( holy crap!) the price of gas will be higher then it is today. To most normal men and women of my age this statement is like predicting that the sun will rise tomorrow or that Brett Frave may come out of retirement. However, to the suits in Washington this statement sends a shiver up their spine and they shake their collective heads in disbelief that a commodity like Gas would go up in value. Just like clock work they demand hearings and a justice department investigation into price gouging and market manipulation while some of the more liberal tree hugger’s demand that we immediately put propellers on our cars and ride our bicycles to work. The problem with Washington is that 90% of them have no idea how economics work nor do they have a clue with how to solve the problems we have unless they order a new Agency created or a task force assigned to look at the problem. The University of Yale recently spent 20 million they received in a grant to study weight loss and concluded after five years that consuming less calories and daily exercise is the key to sustaining long term weight loss. Really? The rest of the country could have sworn eating an all bacon diet washed down with beers and pork rinds, while refusing to exercise, was the true key to healthy living. I might petition the government for grant money and conduct a study on how to reduce drunk driving in this country. I’m pretty sure my scientific approach will discover that the key to stopping drunk driving appears to be consuming less alcohol and calling for a cab but I’m willing to spend 20 million to publish my findings. While this lack of common sense seems laughable, this is the precise attitude that has swept Washington for nearly 20 years and continues today.
Market Manipulation has been quoted by past and present Presidents as a reason for gas prices jumping, yet they fail in repeated inquiry after inquiry to uncover the manipulation. The reason is simple: there is no market manipulation. Investors, traders and speculators are using the same tried and true economic tools that are the key to a capitalistic society. Economics 101 teaches incoming freshmen that supply vs. demand sets the price for any goods or services being sold. In this case, there actually is plenty of supply for oil however when Presidents get into wars in oil rich countries like Iraq and Libya, the future supply of oil is suddenly in doubt. When a current President freezes mass amounts of drilling in our gulf, future supply channels are now in doubt. Speculators are totally legal and within their rights to bet that oil supply will continue to shrink due to a variety of reasons. They can get burned or they can get rewarded but an investor telling his trader to buy more oil at $108 or $110 is not manipulating. The problem for us is that right now there are more buyers of oil for the future then there are sellers. This same phenomena happens in the stock market every day when a Company comes out with great earnings and a bright forecast for the next year. Suddenly the market is flushed with more buyers then sellers and before long a stock takes off to the moon. It is not until cooler heads prevail and realize that the stock is now trading at one hundred times earnings that sellers begin coming in and taking their profits off the table. The entire internet bubble of the 1990’s was fueled by speculation that any company that created a dot com web site had to be worth more. Virtually over night some companies were trading for more then IBM and GE even though they were losing money and were running at an unsustainable burn rate.
The other big problem for oil is that it’s priced around the world in U.S. dollars which have been so devalued due to our obscene printing and spending since 2000 that there is literally hyperinflation priced into oil. In 2009 oil finally dipped below the $100 mark but since 2009 over 5 trillion in new debt has taken our dollar to Mexican pesos levels and politicians are surprised that foreign countries want more U.S dollars for each barrel? The real worry is if oil is no longer priced in U.S. dollars and instead switches to the Euro or Yen or Cheech and Chong. Quite frankly, once oil is no longer priced in U.S. dollars our prices will double overnight from their current levels. Washington doesn’t want to address this however and instead is focusing on Oil companies and price gouging. A Congressman recently belly ached that one oil company made 18 billion in profits last year and that they should pay more taxes. The big five oil companies made almost 120 billion in combined profits in 2010. If we were to levy a tax on them of 100% of their profits and took the entire profit away that would reduce our Federal deficit from 1.65 Trillion to about 1.5 Trillion. Think about that for a second and then ask why Gas is rising? If the U.S government confiscated every penny of profit from the big 5 oil companies out deficit would still be 1.5 trillion and our dollar would still be shrinking. Perhaps its time for an economics 101 class on Capitol hill?
