Added, 08.04.2006. Thanks to Whiskey & Gunpowder @agorafinancial.com

Ron Paul on Gas Prices

Ron Paul, Texas straight talk in “What Congress Can Do About Higher Gas Prices”:

“Gasoline prices are soaring and the American people are angry. They want something done about it -- now!

“$100 rebate checks to American motorists won’t cut it, nor will mandatory mileage requirements for new vehicles. Taxing oil profits will only force prices higher. But there are some very important things we can do immediately to help.

“First: We must reassess our foreign policy and announce some changes. One of the reasons we went into Iraq was to secure oil. Before the Iraq war, oil was less than $30 per barrel; today, it is over $70. The sooner we get out of Iraq and allow the Iraqis to solve their own problems, the better. Since 2002, oil production in Iraq has dropped 50%. Pipeline sabotage and fires are routine; we have been unable to prevent them. Soaring gasoline prices are a giant unintended consequence of our invasion, pure and simple.

“Second: We must end our obsession for a military confrontation with Iran. Iran does not have a nuclear weapon, and, according to our own CIA, is nowhere near getting one. Yet the drumbeat grows louder for attacking certain sites in Iran, either by conventional or even nuclear means. An attack on Iran, coupled with our continued presence in Iraq, could hike gas prices to $5 or $6 per gallon here at home. By contrast, a sensible approach toward Iran could quickly lower oil prices by $20 per barrel.

“Third: We must remember that prices of all things go up because of inflation. Inflation by definition is an increase in the money supply. The money supply is controlled by the Federal Reserve Bank, and responds to the deficits Congress creates. When deficits are excessive, as they are today, the Fed creates new dollars out of thin air to buy Treasury bills and keep interest rates artificially low. But when new money is created out of nothing, the money already in circulation loses value. Once this is recognized, prices rise -- some more rapidly than others. That’s what we see today with the cost of energy.

“Exploding deficits, due to runaway entitlement spending and the cost of overseas engagements, create pressure for the Fed to inflate the money supply. This contributes greatly to the higher prices we’re all paying at the pump.

“If we want to do something about gas prices, Congress should greatly reduce federal spending, balance the budget, and eliminate regulations that interfere with the market development of alternative fuels. All subsidies and special benefits to energy companies should be ended. And in the meantime, let’s eliminate federal gas taxes at the pump.

“Oil prices are at a level where consumers reduce consumption voluntarily. The market will work if we let it. But as great as the market economy is, it cannot overcome a foreign policy that is destined to disrupt oil supplies and threaten the world with an expanded and dangerous conflict in the Middle East.”

It is good to see that our one true friend in Congress understands what inflation is. Most people still do not have a clue.

I have to disagree about $20 per barrel oil, though. It seems Ron Paul is forgetting about a little thing called "Peak Oil." Demand is rising worldwide, and supplies are falling. In that scenario, oil prices are bound to rise. Yet a rise caused by normal market forces (supply/demand), as opposed to throwing money around, will not have anything to do with inflation.

As Ron Paul suggests, the market if left alone will provide a solution. It always does. When the government interferes with market forces, things happen, and they are always bad. Supposedly, our invasion of Iraq would "pay for itself" in lower gas prices. Well, not only did it not pay for itself, but we wasted close to a half trillion dollars in that sinkhole, and the flow of oil out of Iraq is only half of what it was before we invaded. We also started a civil war. Even the most optimistic administration supporter can no longer deny that truth. Many unforeseen consequences of our meddling in Iraq have not even been felt. They are coming.

Ron Paul is not the only one asking for troops to be pulled out of Iraq.

If he really exists, Phillip Hollsworth is a moron.

And if you think that petitioning the President [or anybody else] will make a difference, so are you.

And nothing you do like that will influence how much money terrorists get.

And don't try a 3-day boycott, either.... The fuel companies won't "choke on their stockpiles" either.

Ok, first, if you don't buy gas one day, and buy it the next day, you've sent no message to the oil companies. They know what average demand is.

If you and millions of others don't buy gas on one day, the tankers that refill the stations' tanks at the end of the day or week won't have anywhere to put their loads, so they'll sit idle or parked somewhere, waiting to dump their loads, or driving somewhere else where the comsumption was higher, burning fuel they wouldn't have otherwise, and you and I will have to pay for that extra fuel consumption with HIGHER net prices, not lower...

Much of the price of gas is in the state and federal taxes, not in any markup at the pump.

Much of the high price of gasoline today comes from environmental laws that in california, for the worst example, require a dozen or two blends of gasoline for local markets, rather than the one or two that most of the other states require. This makes refineries run less efficiently, increasing the cost of manufacture of the fuel. Not buying gas one day or even for a week, doesn't change this at all.

If a hurricane disrupts oil pumping stations in the Gulf of Mexico or refineries onshore, the supply is diminished, while demand [consumption] doesn't change very much. A supply constraint, given fixed demand, forces prices up, whether you like it or not or believe in this "economic theory" or not. That's how it works. Get used to it. Buying or not buying gas won't make a bit of difference in this way, unless the average consumption drops.

Much of the increased cost of gasoline comes from the lack of new refineries built over the past twenty or forty years. Current refineries are wearing out or breaking down, and nobody, probably you included, wants to see a new refinery built anywhere near where you live [Google NIMBY, if you don't already know the term.] No new refineries means that the plants that convert crude oil into gasoline are running at capacity or above, and any breakdown at any of them reduces supply. See previous paragraph. Re-read it a few times if you didn't get it the first time.

Many people in the oil business believe that we've reached the point where about half of the total amount of oil that's ever been in the earth has been extracted. The implication of this is that the "other half" will be harder to get out, and thus more expensive at the well, not just the gas pump. Given that nobody wants any more refineries, and it takes a decade or two to get the permits to build one and then build one, and if the supply of oil in the ground will start drying up long before the refinery's costs have been amortized over a nice 30-year lifetime, well..... No oil magnate with his head screwed on frontwards is going to WANT to build any more refineries. Thus, supply remains constrained and the price goes up due to taxes and the increasing cost at the well-head.

You can wail all you want, organize all you want, and send emails to everybody on earth, and it will not do what your tummy or heart wants to see happen: lower gas prices.

Now, if everyone traded in their SUV or Hummer on a Prius, they'd go from 10 miles per gallon to 40 or more, and their 25 gallon tank that costs $75 to fill every week at $3.00 a gallon would suddenly become a $36 fill-up, every OTHER week or less. THAT would lower demand for gas, and the refineries could keep up with lower demand, and lower demand would help prices drop. If nobody needed gasoline, what would the price be?

Try something new: think about it.