Gasoline prices are not rising, the Dollar is falling

February 24, 2012 by · Leave a Comment
Filed under: Commodities News 

This was insightful commentary with a serious conversation about the ratio of gold / dollar and oil prices.  With large amount of debt issuance ahead to cover current budgets and long-term liabilities, it is almost “in the bag” that we will see higher prices ahead.   We will see some major corrections along the way the will allows commodity prices to fall across the board then we will be talking about the doom of deflation (I actually think this will be needed to bring incomes and cost of living back in-line) then the bulls will come out again to pump it back up.   Its a cycle but in the end, the trend is certain, higher prices for things you “need”, lower prices for “wants” (better production but not enough demand) and steady or falling wages and they will translate into the fore mentioned scenario.

We have too much debt in our system and not enough money to pay it off.   Our track record on letting things default and fail not good, so the assumed course of action will be more support and debt to try and keep things smooth.  This will not work because of the debt issue and the scarcity of money we have created with issue money as a debt instrument in society.  This will be the defining issue we will tackle in the next 25-50 years and it will shape our society beyond that.

Forbes – Panic is in the air as gasoline prices move above $4.00 per gallon. Politicians and pundits are rounding up the usual suspects, looking for someone or something to blame for this latest outrage to middle class family budgets. In a rare display of bipartisanship, President Obama and Speaker of the House John Boehner are both wringing their hands over the prospect of seeing their newly extended Social Security tax cut gobbled up by rising gasoline costs.

Unfortunately, the talking heads that are trying to explain the reasons for high oil prices are missing one tiny detail. 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.

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