printIn “THE GOODS ON GAS,” it was explained that the deliberate and destructive policies of deficit spending are responsible for the steady rise in the prices of all commodities, crude included. This is so because deficit spending is “accompanied by an enormous increase in the stock of money,” as economist Henry Hazlitt explained in Economics in One Lesson.
Prices are rising due to the sustained policies of credit expansion pursued by a profligate government. More fiat currency in the system means that every unit is worth less. The coin is debased.
All correct, except for one thing, says Forbes’ Louis Woodhill.
Oil prices aren’t high right now. In fact, they are unusually low. Gasoline prices would have to rise by another $0.65 to $0.75 per gallon from where they are now just to be “normal”. And, because gasoline prices are low right now, it is very likely that they are going to go up more—perhaps a lot more. What the politicians, analysts, and pundits are missing is that prices are ratios. Gasoline prices reflect crude oil prices, so let’s use West Texas Intermediate (WTI) crude oil to illustrate this crucial point.
As this is written, West Texas Intermediate crude oil (WTI) is trading at $105.88/bbl. All this means is that the market value of a barrel of WTI is 105.88 times the market value of “the dollar”. It is also true that WTI is trading at €79.95/bbl, ¥8,439.69/barrel, and £67.13/bbl. In all of these cases, the market value of WTI is the same. What is different in each case is the value of the monetary unit (euros, yen, and British pounds, respectively) being used to calculate the ratio that expresses the price.
In terms of judging whether the price of WTI is high or low, here is the price that truly matters: 0.0602 ounces of gold per barrel (which can be written as Au0.0602/bbl). What this number means is that, right now, a barrel of WTI has the same market value as 0.0602 ounces of gold. …
Sound argument, interesting numbers. Around about August, I plan on having “O” wealth in dollars and dollar-denominated paper…’cause that’s when the balloon goes up in the Middle East, and the dollar goes down for the count.
For those of us who aren’t familiar with the X’s and O’s of the economy suffice it to say; Get the government out of it and let the beast, meaning the economy, do it’s own thing.
It would have been nice to see the plot (that Woodhill alludes to).
My only dissent is that gold itself is a speculative item – which probably puts me in line for excommunication.
Real wealth is produced through a combination of sweat and ingenuity – not through Federal Reserve stimuli or Fannie Mae loans. Until people understand that we will have idiotic leftist or rightist blowhard politicians claiming how they can deliver cheap gas, affordable housing, universal Mayo Clinic medical care, etc.
PROVIDED WE ELECT THEM!!!
The economy would be better if all our politicians would keep their hands off economic meddling and just go out and play golf and have sex. Bring back Bill Clinton!
When someone claims that gas is getting too expensive, remember when gas was thirty cents a gallon. I get lots of attention when I counter with “Gas is still thirty cents a gallon or a little less. It’s the dollar that is worth less than a cent today.” You can see the little minds furrow and a slow dawn of comprehension form. It’s a beautiful moment.