Unhappy with pump prices? Blame the Republicans

How do interest rates impact the price you pay for gas at the pump?

There were two oil embargoes during the 1970s. During the Ford administration, OPEC, the new organization of petroleum exporting countries, caused a worldwide oil crisis when it embargoed oil and forced prices to rise. Again, toward the end of the 1970s, the country of Iran had its own oil embargo and, once again, prices rose and people paid the price at the fuel pumps. For every dollar worth of fuel, the Japanese were paying 295 yen. Talk about high gasoline prices! Imagine what we would be paying for fuel if our dollar were devalued. Really, you don’t have to imagine very much because the dollar has been devalued to the equivalent of 80 Yen. Now when we pay a dollar at the gas pump it is costing us the equivalent of 80 yen.

During the 1970s the Federal Reserve increased interest rates to fight the inflation that was caused by the high price of oil. How do rising interest rates work to stop inflation? High interest rates stifle economy activity. Often, small businesses cannot borrow money to buy equipment for a start up or for ongoing operations. As the economy slows and unemployment rises, workers have less money to spend. As spending slows businesses are forced to cut more jobs and more people are put out of work. Meanwhile, foreign investors buy more high interest bearing, dollar denominated securities. The demand for those securities drives up the value of the dollar. The high value of the dollar makes our goods expensive and foreign made goods cheap. Our exports shrink and imports surge, and more jobs are lost, perhaps forever. That puts more pressure on American manufacturers and workers.

High interest rates attract investors, foreign and domestic, and stifle economic activity. During the 70s and into the 80s treasury securities paid high rates of interest. Investors found them very attractive. Our trading partners found a great place to invest foreign trade surplus funds. When we bought their goods, they made profits, and invested them in U.S. securities and businesses. The very attractive interest rates made the dollar a valuable commodity. In fact, the dollar rose in foreign exchange rates to a high of 295 yen to the dollar.

For decades, oil has been priced in dollars. When our suppliers: Canadians, Mexicans, Venezuelans and Saudis sell oil, the prices are based on U.S. dollar. In the case of Japan, they will pay 80 yen for a dollar’s worth of oil. As for those of us who live in the United States, we cannot expect lower oil prices in exchange for our devalued U.S. currency. The Republicans are blocking further stimulus plans that would increase economic activity in this country and strengthen the value of the dollar. If you are unhappy with gasoline prices at the pump, blame the Republicans who led us into a deep economic recession and a very weak housing market. Now that they control the Congress and the checkbook, they have put the brakes on the economy; instead of spending to stimulate our economy and to create jobs, they are pushing for more spending cuts that will lead to more job losses and will extend the recession. Our economic expansion started as soon as Obama and the Democrats were in charge of the Whitehouse and both houses of the Legislature. The economic expansion ended when the Republicans won control of the House of Representatives. Austerity budgets will always make a bad economy worse.

The Republicans are balking at increasing the debt ceiling. Imagine what would happen if our country were to default on our debt. Who would loan us money? What would happen to the purchasing power of the dollar if worldwide investors lost confidence that our government would meet its obligation to redeem its debt? The value of the dollar would plummet and imported goods and commodities would become very expensive. How would you like to pay $10 per gallon for gasoline? It could happen if the Republicans have their way and refuse to increase the debt limit.

Oil shortages will be our biggest problem

While people fret about the Social Security trust fund, they are generally unaware of a much larger problem that faces us in just over 10 years.

What is the true cost of gasoline, diesel, and other oil based products? Is it the price that we pay at the pump, or is it the total cost which includes the cost of protecting oil producing areas and pipelines that help to feed our hunger for cheap fuel?

The Highway trust fund went insolvent in 2008; money from the general budget was transferred to the trust fund to pay for upkeep and construction of our highways, waterways and bridges. In short, income taxes and borrowed money are now being used to pay for those things. The deficit commission has suggested a 15 cent a gallon fuel tax increase. That may be enough to fund the Highway infrastructure, but it is not enough to pay for protecting our oil supplies.

In fact, the price of oil includes, the costs of refining, distributing, and selling fuel, but those costs are just the tip of the iceberg. The federal fuel tax is 18.4 cents. Each state has a fuel tax as well. Those taxes vary widely throughout the United States with the lowest fuel tax in Alaska, a state with few roads and a huge amount of state revenues derived from oil production in the state. The highest fuel tax at the pump is 32.1 cents per gallon in Wisconsin. That tax is adjusted for changes in the consumer price index. Pump prices are the costs that we see, and pay directly, but that’s not all, folks, there is still the cost of providing military might to protect oil producing countries. As reported in his book BLOOD and OIL, Michael T. Klare spelled out that we have a huge military force dedicated to protecting oil supplies and pipelines in various parts of the world.

With the wars in Iraq and Afghanistan, we realize that there are huge costs for fighting wars in the oil producing areas of the world. Afghanistan may have no oil but it is in a strategic area and has common borders with countries that produce enough oil for export. Mr. Klare spells out the fact that our country is involved in arming friendly countries and providing training for local armed forces to protect oil production and pipelines in other countries. Our naval forces in the Persian Gulf region are there to protect vital waterways through which oil is moved to ports around the world. Our allies in the region, Saudi Arabia, Kuwait and others depend on those waterways to protect their shipping. Our navy can also provide air power to protect our allies and support our troops on the ground in Afghanistan and Iraq and the region.

The military costs of protecting oil sources and transportation add to our budget deficits. Those costs are paid for by taxation and borrowing. Money spent to protect our oil sources is an indirect cost of having cheap fuel for our cars and trucks as well as for heating for our homes and factories. Oil is an important commodity that greases the wheels of our economy and controls our destiny. Our dependence on oil is the major reason why we need to move to alternative, renewable energy resources immediately.
We are not alone in our dependence on oil. We face stiff competition for cheap oil from the Russians and the Chinese. They also have forces and allies in the region to protect their oil interests. Peak oil production gets closer with each passing day. Some experts predict that the peak will occur in about 10 years. At that time, oil production will slow and world supplies will dwindle. If we do not move now toward a more energy independent future, we will face serious consequences in just over a decade.


Sources for this blog are: Blood and Oil by Michael T. Klare

Information on peak oil can be found at: http://www.investmentandbusinessnews.co.uk/headline/peak-oil-is-less-than-a-decade-away/11863

A table showing fuel taxes by each state: http://www.gaspricewatchusgastaxes.com/.asp See how your state compares.

If you think gasoline prices are high now, you "ain't" seen "nuthin yet"

Cartoon by Stephen Stone




So, you think that gasoline is expensive now; what would you think if the fuel tax was increased enough to support our ongoing defense of countries in the oil region producing of the Persian Gulf? If the billions of dollars spent to maintain our naval presence in the Middle East were totaled up and divided among each gallon of gasoline pumped into our cars and trucks the increase in fuel prices would be steep and permanent.

Our country entered into a conflict in Libya on Friday. Millions of dollars worth of missiles were launched into that country in a effort to prevent a massacre of Libyan rebels and to give them an opportunity to fight on equal terms with the Libyan controlled army of Colonel Muammar Gaddafi. Although Libya controls a much smaller amount of oil than other Persian Gulf nations it is still an important source for our European allies. Every drop of oil pumped from the ground in Libya will add to the world’s current available oil supplies and ease the current round of fuel price increases.

Probably the most important book that I have read for very long time is Blood and Oil: by Michael T. Klare. He is also the author of Resource Wars.

I read a lot of books about current affairs; I believe that Blood and Oil is one of the best. The security issue surrounding oil has mostly been overlooked by the press and the broadcast media. Ignoring the issue will no longerbbe a choice as worldwide oil resources are depleted. The simple fact is that protecting oil will be one of the most important issues that the world will ever face. We must begin to wean ourselves from oil dependency and to work toward building renewable energy infrastructure, fuel efficient vehicles, and mass transit systems that will be powered by renewable energy, electricity and hydrogen gas. We will have to develop and use appliances that are more energy efficient and use building materials that conserve energy. To me, Blood and Oil is also a message that we can no longer ignore the realities of a world running low on carbon based fuels. Also, we may be running out of time to limit our production of CO2 or face an ever more hostile environment that will change the very way we live and die.

The Obama administration has dedicated stimulus money for wind and solar panel energy construction. We need more of that type of spending now, the sooner the better. He has also planned for mass transit which cannot come soon enough to reduce our dependence on oil. Until we can reduce our dependence on imports of fossil fuels, we will be in jeopardy of continually sending our young men and women to war to maintain our vital supplies. We must begin now to break our dependency. Cheap fuel is like a drug; this country is hooked on it and cannot break the habit. This whole country needs to go to rehab and be rid of our addiction to oil.

In the mid-term elections, few people mentioned renewables. Roy Blunt of Missouri made it an issue to use against his opponent whose brother is involved in a wind farm company. We need to encourage more energy innovation, not to criticize those who are working toward that end.

For information concerning the cost our military presence in the Persian Gulf, visit the following website.

http://www.icta.org/doc/RPG%20security%20update.pdf

To read about and to understand climate change, you might want to read Boiling Point by Ross Gelbspan