What is the reason for high
gasoline prices today? Liberals like to put the blame on big oil companies.
They argue that these companies are profiteering at the expense of all of us.
Conservatives like to blame the Obama administration for dragging its feet on
drilling in the USA. They reason that if we had more supply, prices would drop.
However, it might be better to
look in another direction for the reason for the high prices at the pump. Every
time we fill up we exchange some money for a few gallons of gas. Instead of
looking at the price of gas, maybe we should examine the value of the money we
use to pay.
Let’s take an average driver who
puts 12000 miles a year on his car. If the car averaged 20 miles per gallon, he
would use 600 gallons in a year. At today’s price of about $4.00 per gallon,
his total cost for the year would be $2400. Just imagine that instead of using
cash or a credit card to pay, you used gold. At today’s price of $1640 per
ounce, he would only need about an ounce and a half of gold to pay for a full
year’s supply of gas.
Two years ago when gas prices were
about $2.80 per gallon, the driver would have needed $1680 to pay for his 2400
gallons that year. However, in 2010 the price of gold was only $1125 per ounce.
It would still have taken about an ounce and a half of gold to buy the full
years supply.
In other words, the price of gold
in relation to oil has hardly changed in the past two years. What has changed
is the value of the paper we call money that we present at the pump. In the old
days they would have this debasing the coinage.
Massive government borrowing has
cheapened the value of our dollars. You’d have to be a real sucker to accept
cheaper dollars for gasoline. The oil and gas we buy is the same product as
always. It still probably costs about the same to drill and refine it into the
finished product we use in our cars.
It is true that other factors are
involved in gasoline production. Catastrophes and speculation can cause
short-term swings in prices but in the long run no driller or producer is going
to accept Monopoly money for their product.
We all knew this when we were
children. Why don’t we understand it now? Which one of us would have traded a Mickey Mantle card for the whole Washington senator team? For that matter who today
would trade Exxon or Chevron for the whole US Senate? ###
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