Posted on 05/16/2006 8:30:33 AM PDT by Marxbites
Seeking to shift blame away from the Federal Reserve and the Nixon White House for the oil shocks of the early 1970s, the late Herbert Stein said, “My devotion to the old-time religion is not so great as to make me believe that M1 or the full-employment budget deficit determines the amount of rainfall in the Russian wheat lands, the location of Peruvian anchovies or the decisions of the oil cartel."
Seeking to shift blame today, politicians in Washington have brought oil executives before Congress twice to explain their profits, and just recently voted 389-34 to fine oil refiners and wholesalers up to $150 million if they’re caught “gouging.” Just last week, the Republican congressional leadership proposed a $100 rebate check to supposedly compensate U.S. motorists for the high price of fuel.
Alternatively, various economists and pundits cite the growing economies of China and India as the main reasons for expensive fuel today. These rising economies without a doubt are major factors, as is our own expanding economy. Importantly, the demand-driven price signals that result from economic growth will lead to more oil exploration and arguably lower prices for all commodities in the future. And while supply and demand inarguably play a role in setting the oil price, the dollar’s role is largely unsung today, just as it was in the 1970s when expensive oil first became a political issue.
The consensus view of the 1973 oil shocks is that the U.S. was the victim of an Arab oil embargo that resulted from its support of Israel in the Yom Kippur War. That oil prices rose over 300 percent during the timeframe in question certainly bolsters this view. Leaving aside the fact that Iran and Iraq did not participate in the embargo, what’s easily forgotten is that commodities not impacted by OPEC machinations were booming too.
Indeed, meat prices were rising at a 75 percent annual rate in 1973. From 1972 to 1973 the cost of a bushel of wheat rose 240 percent. Soybeans rose from $3.50 a bushel in 1972 to $12.00 in 1973. Since commodities are priced in dollars, a change in the dollar’s value has an instantaneous impact on the spot price of those commodities. The greenback’s fall in the aftermath of Bretton Woods in a sense made a broad commodity rally inevitable. Looked at in this light, while the Arab factor coupled with regulations and price-caps on fuels in the U.S. were largely to blame for the 1970s energy crisis, Fed policy unhinged from the disciplines of Bretton Woods must take part of the blame.
Moving to the late 1970s, the consensus view is that OPEC’s failure to boost output amidst the Iranian revolution explains the oil shock that closed the decade. The facts suggest otherwise. The price of a barrel of oil did increase, but it was largely a United States phenomenon relating to the falling dollar. While the dollar price of oil rose 43 percent from 1975 to 1979, the price of oil in Japanese yen rose just 7 percent, and in German marks it rose just 1 percent. In Swiss francs the price of oil actually fell 7 percent.
With oil presently trading in the $70 range, today we hear that greedy oil executives, historically high demand in China and India, political uncertainty in Iran, excessive consumerism, and restraints on domestic drilling and refining have combined to bring on the 164 percent rise of oil since the summer of 2001. That list is pretty good if you leave out the greedy CEOs and the gluttonous consumers — the Herbert Steinesque exogenous factors that have nothing to do with expensive oil. What is inappropriately left off that list, however, is that over the same period of time the dollar price of gold has risen 169 percent while copper has risen 373 percent.
All of the above could be attributed to demand, but as commodities are priced in world markets, it’s notable that over the same timeframe the price of oil in euros has risen only 66 percent, and in copper, 200 percent. That the euro price of gold has risen 70 percent is evidence that as opposed to a pure supply/demand phenomenon, part of today’s commodity boom is attributable to central banks printing too much money relative to demand.
The years since we left the relative currency stability of the Bretton Woods era have shown how movements in the value of the dollar and other currencies greatly impact the value of commodities, including and most notably oil. Numerous explanations have been offered up about today’s oil price, but the dollar’s considerable role has not often been mentioned.
As a recent Wall Street Journal op-ed by Marc Sumerlin noted, “Domestic oil producers, venture capitalists and entrepreneurs don’t know whether the price of oil in the next decade will justify the costs of investments they must make today.” Sumerlin’s point described the secondary effect of currency instability on supply, and the resulting oil price. The falling and unstable dollar is having a large impact on the nominal price of oil today. And so long as the dollar’s value is uncertain, so too will be investment in and exploration for oil.
— John Tamny is a writer in Washington, D.C. He can be reached at jtamny@yahoo.com.
Ben Stein's father.
And it's the Lexus Libbies in their SUVs sreaming about the war for oil. Go figure.
Yeah, that doggone "fiat" money. And...in the good old days, the "dollar's value" was certain. That is, as long as it was fixed by fiat to a commodity whose price was fixed by fiat.
Spot on!
Stop government counterfeiting!
An even more ridiculous notion that was popular in the late 1970s and early 1980s was that the escalation of crude oil prices was the CAUSE of inflation rather than its results.
There is never a shortage of absurd explanations for economic events. Usually such explanations are rooted in envy (eg, "greedy oil companies") or politics (eg, "we should raise taxes", "we need new regulations", etc.).
I am a huge believer in the good of the invisible hand of free markets. And that the productions of self-interested individuals, have positive effects on all others.
If the world reverted to the metals based/backed currency that for the 99.99% of mankind's history it had previously operated under; Govts without the power to inflate would also no longer have the power tax and spend with the impunity that makes Govts ever more unlimited.
There is a world market for gold and silver that fluctuates, but if all currencies were pegged to it (as they once were before), metals fluctuations would not affect exchange rates between currencies, but instead exchange rates would be determined free market style on the world's opinion of a given nation's ability to keep it's financial house in order, which for free non-homogenious peoples, means the necessity of limited Govt to make it so.
I don't believe in a living Constitution. And therefore, don't believe in any of the unconstitutional garbage policies of statism they witnessed the euro-dictators amassing their own power with, that the Progressives of both parties envied, embraced, then foisted upon American taxpayers for their own enrichment.
You may find the following videos enlightening, give em a whirl:
http://mises.org:88/Rothbard-Fed
http://mises.org:88/Sophocleus
http://mises.org:88/Fed
http://mises.org:88/Cochran
And some excellent explanations of the souces of the beast's ability to grow so much over the last 100 years or so.
The Constitution was written and ratified to secure liberty through limited government. Central to its design were two principles: federalism and economic liberty. But at the beginning of the 20th century, Progressives began a frontal assault on those principles. Drawing on the new social sciences and a primitive understanding of economic relationships, their efforts reached fruition during the New Deal when the Constitution was essentially rewritten, without benefit of amendment. In a new Cato book, Richard Epstein traces this history, showing how Progressives replaced competitive markets with government-created cartels and monopolies. Please join us for a discussion of the roots of modern government in the Progressive Era.
http://www.cato.org/realaudio/cbf-02-15-06.ram
&
Big Business and the Rise of American Statism
http://praxeology.net/RC-BRS.htm
And...in the good old days, the "dollar's value" was certain. That is, as long as it was fixed by fiat to a commodity whose price was fixed by fiat.
I agree but I also believe the "explanations" are more rooted in deception. Congress's recent grilling of oilco execs is about as transparently deceptive as one can get. What the loudest are trying to do is to intimidate the oilcos into larger campaign contributions, while making themselves appear to really care about the taxpayer, which we know they do not.
Govt spending creates the need for the inflation Govt needs to meet it's obligations. It's a Ponzi scheme little different than SS, paying off their debt with the cheaper dollars they print. However, every dollar printed, devalues all others already in circulation making individuals poorer and Govt stronger.
Today's dollar is worth roughly 20/685ths of it's value before FDR confiscated American's only real money - gold. Upon doing so he revalued gold at $35/oz immediately deflating American's buying power by 43%. Today it's a paltry 3% of it's pre-FDR $20/oz gold value.
If they REALLY cared about the taxpayer - they'd remove the largest cost of gasoline - TAXES.
And I also -
Free markets determine gold's price. If currencies were 100% backed by metals, yes, fixed to gold by fiat, say at the old $20/oz, and our trading partners did likewise keeping their 100% backed currencies at a fixed percentage of gold, fluctuations in the gold price WOULD NOT AFFECT exchange rates BETWEEN currencies. Only one's confidence in another's Govt and economy would, as free markets allow.
There would be no inflation - for govt printing is the only source of that.
No other system entrusted to corruptible men is capable of preventing unlimited Govt from rolling the presses in it's own interest. Our current situation.
You and I agree completely.
but ... but, bu, but. sinkspur told me the economy is doing great. on account of the munificent, benevolence of Jorge Abusto the Munificent. And Benevolent. And All_knowing. And Wise.
uh...well, that's debatable. And, certainly, if it were true under the gold/dollar peg, then "free markets" -- defacto -- determined the dollar's price. But that wasn't possible, because gold's price was fixed by fiat, which was when money was truly "fiat." Now, money value is determined by the market.
The gold standard was an artifice; it was training wheels. The training wheels have to come off as the child grows. Hopefully, the child grows with enough character to handle a real bicycle.
Dream on.
It's not clear which of my assertions you mock, but I suspect it's the final one (the preceding ones are fact). And that is the difference between collectivists whom you nominally oppose and true conservatives the likes of which Ronald Reagan and no less our founding fathers were such great examples: the latter believe in people, the former insist that people aren't fit to govern themselves.
If you think taking from congress it's duty to coin the money and giving it to foreigners and banking elites accountable to no one, is smart, then you are a fool.
Nominally oppose???? Get a life pal, I hate the sobs and the big Govt they foisted on us, and I love RWR, and how he and Maggie did too.
I'm done with dumb. No mas.
ahh. the tin foil approach.
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