Gasoline prices would be 27 percent lower today if the dollar had held its value relative to the euro over the last decade. FULL ARTICLE by Mark Brandly
Source link: http://archive.mises.org/16757/another-reason-to-end-the-fed/
Another Reason to End the Fed
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And gasoline would be about a buck per gallon today if the dollar had held its value relative to gold over the last decade, and would be darn near free today if the dollar had held its value relative to silver over the last decade.
1 ounce of silver from around 1981 after the silver and gold bubble popped through 2009 could buy 2 gallons of gasoline with little fluctuation. Even at $4/gallon the last time it hit that level, it was still 1 ounce to 2 gallons. This tells me that 100% of price increases over that time is due to monetary expansion.
Today, the ratio is around 1 ounce to 11 gallons. Either silver is in a bubble or oil’s demand has plunged significantly. Possibly a bit of both.
Isn’t silver’s historical ratio to gold 1:20?
It’s present ratio is aprox. 1:50 so it would make sense if its value increased as PMs regained relevance as a store of value/medium of exchange.
Pump price increases 30%. Sales drop 3%. price of gas is to low. Econ 101.
I wish I could make Adblock make your posts go away so I won’t go blind
This sounds awfully like dickering over nominal prices. Is the author supposing the price for everything would be 27% lower if it weren’t for the Fed?
That’s not what he’s saying. What he’s saying is that by using alternate points of comparison, gasoline should be 27% less expensive if the rate of monetary expansion in the USA matched the rate of monetary expansion in the EU.
Oil isn’t sold to different countries for different prices. Oil is pretty much the same price no matter where you go. What is being demonstrated is that the world consideres the Dollar far less valuable than it was in 2001 compared to other currencies. The fact that European countries can pay €73.67 for a barrel of oil should mean a barrel of oil should cost $62.43 if the Dollar was printed at the same rate of expansion as the Euro. By holding oil as the constant, we demonstrated that the Dollar is worth far less compared to the Euro than it was in 2001, meaning the Dollar has, in general, become a less desirable currency. The only way this is possible is if the supply of Dollars relative to the supply of Euros has increased rapidly.
By using other points of comparison, if oil’s demand and supply was held fairly static, gas should cost $22/gallon today (based on a 2 gallon per ounce of silver ratio as in 2001) or $15/gallon (based on a 100 gallons of gas per ounce of gold ratio as in 2001). What this shows is that the demand for oil has dropped significantly, so if the Federal Reserve didn’t print any new money since 2001, gasoline would likely cost somewhere under a Dollar per gallon.
Yep that sounds like dickering over nominal prices – they printed more money and now things have higher price tags. More worrisome would the levying of fuel taxes and oil production failing to keep up with demand – the things that would cause the real price of fuel to rise.
Why wouldn’t monetary expansion cause its real price to go up, exactly?
It’s not dickering over nominal prices. Sure, you could get that out of my statement if you only bothered to read the first paragraph, but the second paragraph basically made your entire comment moot by pointing out that demand has likely dropped significantly considering that you can buy 5 times as much gasoline with an ounce of silver than the 30 year average. The price went up despite the fact that the demand is down (or production up, or some combination of the two).
Nominal prices are also important considering nominal wages haven’t incresed at the same pace to keep up with real inflation. If the median income in 2001 was $42,000, then the median income today should be $66,972 if all that new money printed up over the period landed evenly in our paychecks if we use the Euro proxy to estimate. It’s $48,000 today. In nominal terms, that $18,000 difference is tremendous. If everyone was paid 50% more today than 10 years ago, the gas prices going up 50% wouldn’t be a big deal. Instead, nominal pay only went up 14%. In real terms, we’ve lost 28% of our earning power because printed money doesn’t land in a perfectly even manner over the economy, it just pools in highly specific areas (housing in 2002-2007, now in commodities) to the benefit of a specific population.
It’s a big deal because the average salary that used to be able to purchase 10 gallons of gas per hour can now only purchase 5.
I have been pondering why gasoline is so expensive relative to crude. Here in Ohio we’re looking at $4.15/gallon with crude at $115/bl. In 2008 we didn’t reach $4.00/gallon until crude topped $140/bl. I know that the relationship isn’t fixed, but that’s a heck of a jump in the price of gas relative to crude in a relatively short timeframe. So far the best I can come up with is that it’s a mix of Fed dollars hitting domestic gas prices harder than global crude prices, along with a decline in gas inventories.
Any help from anyone on this would be extremely helpful!
A year ago gold was $1170 and gasoline (average US) was $2.93. Today gold is $1538 and gasoline is $3.95. If gold was our money instead of Bernankes (aka dollars) the price of gasoline would be essentially unchanged.
my opinion is a good bit of the fed influence is advertising. They don’t have as great a direct influence as most people think. There will some day be a way to demonstrate the limits of influence. The proof will be when large numbers of investors understand that actions by the fed are largely to follow, not lead the economic activities. What the Fed can do is to move as a follower to diminish the damage that they do. The economy works when they get out of the way by managing to equilibrium. They do damage on either side, but the understanding of the damage is muted by the extraordinary followership they have developed.
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