Are Gas Prices Soaring Because The Value Of The Dollar Is Falling?

In the last week or so there have been a number of articles posted on the internet which assign the cause of rising gas prices to the falling purchasing power of the US Dollar.

The first article I noticed on the subject was posted March 2 by Julie Borowski at Peace, liberty and sound money. Ms. Borowski's post is titled: "Gas Prices are Rising Because the Dollar is Falling." In the comments section of her post a reader pointed me to the following YouTube of a TV report which apparently aired Feb. 29. The reporter, Ben Swann, claims the price of oil is rising in terms of US Dollars because the US Dollar is being inflated and is, consequently, losing purchasing power. Hmmm.

Following the links in Ms. Borowski's post I found my way to an article posted on Feb. 29 by Nick Sorrentino at AgainstCronyCapitalism.org. Sorrentino references the source of his post as an article by Louis Woodhill posted Feb. 22 in Forbes Magazine.  Ms. Borowski also linked to an article by Eric Parnell which was posted on the website called "Seeking Alpha" on Feb. 22. Interesting...

Who started this train of reasoning is immaterial to me. The question in my mind is: Does the conclusion make any sense? Are gas prices really rising because the purchasing power of the US Dollar is falling? 

Let's delve into this question by considering the following graph which was included in Eric Parnell's post:

The graph shows an apparent correlation between rising gas prices and the Fed's recent bouts of "Quantitative Easing," i.e., injections of new quantities of money into the financial system by the Federal Reserve. Parnell explains the correlation as follows:

Gasoline prices have followed a predictable trend since the first days of Fed stimulus. During QE1, gasoline prices skyrocketed by +118%. Once QE1 ended in April 2010, gasoline prices immediately dropped by -27% in a matter of months, and this occurred during what is typically the strong summer driving season. Once QE2 was delivered to the market in August 2010, gasoline prices jumped another 92% by the end of this stimulus program in June 2011. Once again, the moment QE2 ended, gasoline prices retreated another -28% in a matter of months. Finally, since the latest Fed stimulus program along with the European Central Bank's own LTRO program, we've seen gasoline prices skyrocket another +30%. What is even more irksome is that much of this rise in gasoline prices has occurred during a time when gasoline consumption has been falling. Have the laws of supply and demand been repealed? No, they've just been severely distorted by policy action.

Clearly Parnell believes Quantitative Easing by the Fed has not only a direct effect on gas prices but an immediate effect. However, a statistical correlation is not the same as cause and effect. In order for Parnell's belief to be true, he must explain how an injection of money into the system by the Fed directly causes gas prices to rise, especially in view of the fact that, as he observes, "gasoline consumption has been falling" during much of the time gas prices have been rising. Moreover, he must explain how this direct cause is immediate.

Parnell knows that, when the quantity of money in the financial system increases, prices will necessarily and eventually increase. But why? There is no magic involved. The new money finds its way into the hands of consumers who bid up commodity prices. However, this process takes time. And the process works through supply of and demand for the specific commodity in the market place. If consumption of gasoline is down, higher demand for gas couldn't account for higher prices. And it defies credulity to believe that gas prices could begin to "skyrocket" in "the first days of the Fed stimulus."

It seems to me that Parnell and Borowski have it exactly backwards. It is not the falling purchasing power of the monetary unit that causes commodity prices to rise. On the contrary, it is the rising prices of commodities and services which result in a general, perceived fall in the purchasing power of the monetary unit. As new quantities of the monetary unit are injected into the system, the prices of commodities and services are bid up by those who are the recipients of the new money. In time, and by this process, the prices of all commodities and services are bid up resulting in a fall in the purchasing power of the monetary unit.

So why are gasoline prices rising precipitously if not because of a fall in purchasing power of the US Dollar? I'll offer an educated guess.

Gas prices may be rising because suppliers are witnessing a precipitous rise in crude oil prices and anticipating higher future production costs. 

Why are crude oil prices rising? Perhaps because it is not the US Dollar that determines the price of oil, but gold. As Louis Woodhill points out, the price of oil in terms of gold has remained fairly constant since 1971:

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.

During the 493 months since January 1, 1971, the price of WTI has averaged Au0.0732/bbl. It has been higher than that during 225 of those months and lower than that during 268 of those months. Plotted as a graph, the line representing the price of a barrel of oil in terms of gold has crossed the horizontal line representing the long-term average price (Au0.0732/bbl) 29 times.

Although the US Dollar is the currency in which oil is usually traded, perhaps its role is only nominal. Oil suppliers are not stupid. They realize that gold is and has been the world's preferred store of value. Perhaps they have been pegging the price of a barrel of oil to an ounce of gold and, setting its price in US Dollars based on the value of the US Dollar in terms of gold.

This is pure speculation on my part. I'm not about to gather statistics and do the research. However, I know for certain that commodity prices do not rise magically and immediately due to an influx of a new quantity of money into the system. The laws of supply and demand are always responsible for changes in price. 

NOTE: I should make clear that by this post I am not saying that gas prices have not suffered from price inflation over the years. The prices of commodities and services rise and fall due either to goods induced changes or currency induced changes. I'm sure gas prices are going up and have gone up over the years do to both phenomena. My quarrel is that there is no direct and immediate correlation with monetary inflation.

Events May Determine Obama's Fate

There are eight full months between now and the November, 2012 elections.  A lot can happen between now and then, some good, some bad, when considered from the prospective of the President's reelection. The crazy thing is that these events take on a life of their own. The consequences could be devastating one way or the other. In many respects, it doesn't matter who the Republicans nominate. This is why I find it difficult to take politics too seriously at the moment.

EVENTS THAT COULD ASSURE OBAMA OF A SECOND TERM

1. A Well-Timed QE3  Nothing is more important in a Presidential election year than the state of the economy. And nothing has more influence on the economy than the actions of the Federal Reserve. FED Chairman Ben Bernanke released a trial balloon this weak hinting that the FED may have to engage in another round of pump priming. A well-timed, massive injection of new money into the financial system could give the economy a boost that would resemble a substantial and permanent recovery. Stocks would take off significantly. Employers would be quoted as thinking about hiring again, or delaying layoffs, especially in the financial industry and among government contractors.

The intervention would have to be massive. A corresponding jump in price inflation would be the natural consequence. However, if the Fed intervened in June, the consumer wouldn't feel the pinch in prices until after the election. It wouldn't be the first time a well-timed Fed intervention affected the outcome of a Presidential election. Whether there is collusion between the Fed and the White House is another question altogether.

2. A Well-Timed National Emergency  What kind of emergency? Your guess is as good as mine. Maybe a war with Iran that is precipitated by Israel. The President could say he did all he could to prevent such a war, but Israel's action left the US no choice but to become involved.

Another possibility is a terrorist attack on the US, or Chinese adventurism in the Far East. Who knows. The possibilities are endless. Fear and patriotism have swayed elections in the past.

Summary  Both of these events carry with them an "I got Bin Laden!" opportunity for the President. Mr. Obama is not shy about claiming credit where credit is not due. A faux-economic recovery or a swift and decisive intervention by the American military or first responders would be easy pickings for the President and the mainstream media who are essentially shills for the incumbent.

EVENTS THAT COULD SWING THE TIDE AGAINST OBAMA

1. New Taxes Sink The Economy To A New Low   In 30 days the US will Have The World's Highest Corporate Tax Rate. Moreover, at the end of December, 2012 the Bush Tax Cuts are set to expire. Too late to affect the economy before the election? Hardly. Ending or extending the Bush Tax Cuts are likely to be a huge election issue. The Democrats will demagog while the market places its bets. The end result will be an anchor on the economy. In the meantime, key new Obamacare taxes are set to kick in at about the same time. Business owners will continue to sit on their hands and the medical industry will anticipate them. This all adds up to another economic anchor weighing down Mr. Obama.

2. The Birth Certificate Controversy May Explode  This week Sheriff Joe Arpaio of Arizona’s Maricopa County released a report that "concluded there is probable cause that the document released by the White House last year as President Obama’s birth certificate is a computer-generated forgery." Arpaio's efforts will continue. Moreover, there are a handful of "birthers" around the country who won't let this issue go unchallenged in the courts. Who knows? Arpaio or an obscure federal judge somewhere might just spell Obama's Waterloo. Stranger things have happened.

3. Obama's Elusive Paper Trail May Catch Up With Him  Reportedly, the late Andrew Breitbart "was set to release damning video footage that could have sunk Barack Obama’s 2012 re-election campaign." Breitbart's compatriots have promised the videos will be released shortly. If the videos show conclusively that Mr. Obama was well-acquainted with terrorist radicals William Ayers and Bernardine Dohrn and not merely "neighbors" who barely knew each other (as the President has said), the President and his cronies will have to do some fast talking. The damage is sure to be palpable.

Moreover, these things have a tendency to snowball. Perhaps someone somewhere has access to the President's college writings or knowledge of some damning associations or activities in Obama's hidden past. Who knows what information may come back to bite the President.

4. The Truth About Bin Laden's Death May Surface  Unlike the issues above, about which I continue to remain skeptical, I'm convinced there is something very fishy about Bin Laden's assassination and burial at sea. So far the media has bought the official administration story hook, line and sinker. However, the facts suggest questions that have never been asked, much less answered. No administration in history would have been given such a huge benefit of the doubt.

Think about it. The purported mastermind of the most deadly terrorist attack on US soil, the alleged head man of Al Qaeda, America's enemy number one in the ten year old "War on Terror," one of the reasons used to justify the invasion of Iraq, the sole reason Americans have been dying in Afghanistan for ten years -- this diabolical enemy is killed by an elite Navy Seal team, his body is hurriedly evacuated, and is immediately buried at sea in order to comply with the rites of Islam.

No pictures. No autopsy. No nothing. Some on the left believe the Bush administration masterminded the attack on the World Trade Center and then covered it up. If it is possible for a Presidential administration to do that, it is possible for a Presidential administration to fake Bin Laden's demise for political benefit.

Andrew Breitbart won't break this story. There is no "Woodward and Bernstein" in today's media. But somewhere someone just might come clean and sink Mr. Obama's bid for a second term.

5. "Fast and Furious" and Solyndra: Obama's Watergate?  Time is getting short, but these are two more events that may blow up in the President's face. They fail the smell test. All that is required is someone somewhere to turn over the right rock and expose the roaches. Unlikely, but still possible. And potentially fatal.

Summary  Are all of the above mere pie-in-the-sky conspiracy theories? Do any of these events have a snowball's chance in hell of ever materializing in the real world?

Mr. Obama has the media in his pocket. He gets away with blatant hypocrisy and absurdity. He blamed Bush for rising gas prices but denies blame for skyrocketing gas prices during his watch. With a straight face, he proposed "algae" has his solution to the nation's energy problems. His Press Secretary, Jay Carney, lies with impunity. Joe Biden, Harry Reid, Nancy Pelosi, Debbie Wasserman-Schultz, numerous Democrats in the Senate and the House, not to mention leftist talk radio hosts, make absolutely partisan, absurd and foolish pronouncements with nary a peep reported in the mainstream media. Joe Biden said the Taliban is not our enemy, for god sakes! Carney defended him. And still nothing in the press.

All this doesn't bode well for the game-changing events happening as I've speculated. Still, I wouldn't bet against them. Not in this day and age.

We've Lost Our Way

There is a scene in the movie "The Good Earth" in which townspeople, ravished by famine, break into the home of one of their own, a peasant with a reputation for prudence, hard work and frugality. They suspect their friend of hoarding food. Amid righteous demands that their friend share his "good fortune," they tear the cover off the pot on the stove and discover it contains nothing but simmering water and earth.

Those of us with grey hair remember an America quite different than it is today. Neighbors respected each others privacy and their private property. They kept to themselves but were, nevertheless, friendly and quick to lend a helping hand if warranted. They were God-fearing people who understood the difference between right and wrong. They taught their children self-reliance, self-discipline, enterprise, tolerance and the Golden Rule. They insisted their schools do the same.

They failed.

Today even adults are brats, spoiled by a lifetime of coddling, privilege and a righteous sense of entitlement. Schools don't teach civics and godliness anymore. They teach reverence for the self and for what the collective can provide the self. In the old days of America what citizens demanded and fought for was simple opportunity. Now the brats demand their natural-born right to everything from health care to transportation to food -- free of charge -- and they are willing to bash in the skulls of others who have the wherewithal to provide it.

In the old days shame was real. It was what you were made to feel when you let your parents down, or slacked off, or accepted help without the solemn intent to return the favor in kind. Today, no one feels shame because no behavior -- no matter how undignified or raunchy -- is considered shameful.

I got an email today from some brat named Stephanie Cutter. Apparently, she's the Deputy Campaign Manager for something called Obama for America. Stephanie emphatically reminded me that having to pay for something yourself -- in this case, birth control pills -- amounts to a "dangerous overreach" and someone else "having the power to decide what's best for you."

In Stephanie's new America getting what you need free of charge from someone else is a human right. No American today should find this philosophy shocking or disagreeable. For years we've dutifully allowed our taxes to support free-of-charge public schools where "progressive" educators fill our children's heads with such tripe. That these children graduate spouting the values of Karl Marx rather than Ben Franklin should not be surprising.

When times are good, when the harvest is lush and plentiful, these newfangled ideas are mere laughable curiosities. No one could possibly take seriously the idea that charity can be righteously coerced by a government bureaucrat, or that the demands of a hungry and needy majority can trump an individual's right to his own private property, or that having to pay for something yourself can be construed as tyranny.

However, when times turn bad, when famine hits, normally reasonable individuals lose their heads. They band together with their neighbors to form a mob. The come to your house knocking, shouting, demanding. Then, the sudden fearful realization hits you that these people are not only serious but they are also willing to kill you and your family to get what they want.

Don't worry. It is but a fleeting fear. For soon these brats will discover the laugh's on them. Why? Unbeknownst to them, their coddling victims have embraced their brat philosophy. As a result, the cupboards are empty. There is nothing left to steal but a simmering pot of water and good earth.

And The Oscar Goes To: Lynn Bari, Best Portrayal Of A Big Band Singer

Lynn Bari is one of my favorite actresses from the black-and-white era. She played a Big Band singer in three movies: "Sun Valley Serenade" in 1941, featuring the Glenn Miller Orchestra; "Orchestra Wives" in 1942, again featuring the Miller big band; and "Sweet and Low-Down" with Benny Goodman in 1944. In all three she was the prototypical, sexy, Big Band singer/temptress. She didn't sing in the movies herself, but she had the moves down oh so well.

From Wikipedia:

Lynn Bari (December 18, 1913 – November 20, 1989), born Margaret Schuyler Fisher, was a movie actress (usually in B-movies) who specialized in playing sultry, statuesque man-killers in over one hundred 20th Century Fox films from the early 1930s through the 1940s.^[1]

In "China Girl," a favorite of mine, she plays the hard-edged woman of the world. Very, very uncomplicated. Here, from "China Girl," is a favorite scene of mine. The dialogue is stereotypical '40's, when men were men, Americans were Americans and Lynn Bari was all woman. The script was written by Ben Hecht, one of film's best screenwriters. Lynn Bari plays Captain Fifi, who along with her supposed husband, Major Bull Weed, are Japanese agents. George Montgomery plays Johnny Williams, a fast and loose American photographer/fortune hunter who is constantly on the make. Gene Tierney plays Miss Haoli Young, a "China Girl" (of Chinese/American parents). Tierney is no slouch herself when it comes to American womanhood, but it is Bari who steals this fun scene. Pay close attention to the 40's slang, the sexy banter and Johnny's description of Fifi as the woman who has "everything."

(In the hotel bar. Johnny approaches Fifi who is sitting alone at a table having a drink.)
Johnny: Sittin' up for me?
Fifi: Yeah...Momma was worried.
Johnny: Where's the Major?
F: Strolling.
(Johnny sits down with Fifi.)
F: Well, how did the romance turn out?
J: Flied out to center field.
F: Ah...you weren't yourself. What a shame. Care to tell momma about it?
J: Next Tuesday...Momma got any cash on her?
F: A little.
J: I like a girl who's solvent...Waiter! Bottle of rum! (To Fifi.) You look a little sad. You aren't homesick, are you?
F: Homesick! For where?
J: I don't know. Where you from?
F: What does it matter?
(Johnny pours a drink for himself and Fifi. She stares at him, giving him that "I like what I see and I'm available" look. He raises his glass to her.)
J: Here's to when we were young and had answers for all the questions.
F: (Dreamily) That was a nice time.
J: Yeah...Ever been up in the Wango country?
F: No.
J: They got snakes up there with great big green eyes just like yours.
F: I've done most of my crawling in warmer places.
J: I like you.
F: Snake fancier, huh?
J: No. I like you because you're everything a woman should be...a hundred and fifteen pounds of crookedness and kisses with a laugh for a finish.
F: You've got a fine sales talk, Mr. Williams.
J: Yeah. There's only one thing about a dame that's real.
F: (Leaning toward him) What's that?
J: This! (Kisses her hard)

(The two leave the lobby and head upstairs to his room. Once inside, they start getting comfortable.)
J: The principle rule is no lectures. You start that, I walk out.
F: Have it your way. (She kisses him hard. As they are kissing, he notices something in the shadows.)
J: Hold it, baby. We got a stowaway!
(Miss Haoli Young is shown lurking in the shadows.)
Young: Good evening.
J: Well! You get around a lot for a Vassar girl.
F: (Gritting teeth) Isn't this the little lady in center field?
J: Yeah, the same.
F: Outside, princess!
Y: That is for Mr. Williams to say, I think.
J: Now what is it that's on your mind, Miss Young?
Y: I want to apologize to you.
J: Is that so! For what?
Y: For letting you go.
J: (Smiles excitedly, gives Fifi a quick peck on the lips and tells her....) My duty is plain. (He turns to Miss Young and pulls her toward the door.) Come on!
F: (Angrily) True love wins, huh?
J: Yeah, something like that! (He steps through the door and into the hall with Miss Young in tow. He turns to Fifi.) Oh, give the Major my best regards, and tell him how I acted like a man of honor in a pinch!
F: (Angrily follows Johnny and Miss Young into the hall. As they flee, she growls at them.) You bore me, Mr. Williams! (She picks up the bottle of rum, hurls it at Johnny, but misses.)
J: (Tugging Miss Young as they run away) Come on, Baby! She may get the range!

 Priceless! It's the reason I love old movies.

Lynn Bari's authorized biography, written by Jeff Gordon (no, not that Jeff Gordon), called "Foxy Lady," is reputed to be one of the best ever written in the genre. It's well worth the price tag. 

Here's Lynn Bari as the torch singer, Vivian Dawn, in "Sun Valley Serenade." She's mouthing the words to "I Know Why." Pat Friday dubbed in the vocal. The intro is "Moonlight Serenade." By the way, that is the man himself playing his trombone, Glenn Miller, along with his band.

Here's Ray Eberle and Lynn Bari, as the wife-stealing torch singer, Jaynie, singing "At Last" fronting the Miller band in the film "Orchestra Wives." (An excellent movie, by the way!) At least Eberle is singing. Pat Friday is again dubbing the Bari vocal.

Not limiting herself to Miller, here's Bari as Pat Stirling, fronting the Benny Goodman Orchestra in the movie "Sweet and Low-Down." Yes, that is Mr. Goodman himself. Lynn's lip-sinc-ing "I'm Making Believe." This time it's Lorraine Elliot dubbing the vocal. That intro tune is Benny's theme song, "Let's Dance." And that dark-haired beauty dancing with her father is Linda Darnell. 

What a glorious era! I'd give my right arm to be there now in a 40's night club listening to Benny and Bari...and dancing with Linda Darnell!

Here's Bari again with Goodman in "Sweet and Low-Down," singing "Ten Days With Baby." 

Bari, again, in "Orchestra Wives," belting out "Serenade in Blue." If you don't like this, you are not breathing.

Cat fight!! Lynn stirred this mayhem up among the "Orchestra Wives." She doesn't appear in this scene, but it's fun anyway.

A couple of Lynn's other vehicles.

And now it's eye-candy time. Lynn Bari was a very beautiful woman and a classy dame!

More Sunday Night Whimsy

Cyd Charisse and Leslie Caron...

Cyd in "Singin' In The Rain"

Leslie in "Daddy Long Legs"

Cyd in "Meet Me In Las Vegas"

Cyd and Ricardo Montalban

Cyd in "Party Girl"

Leslie in "Daddy Long Legs"

The Fallacy Of Progressive Interventionism

As Ludwig von Mises reasons, in a capitalistic, free market economic system the consumer is sovereign, i.e., consumers decide which particular goods and services satisfy their most urgent demands. The dollars consumers spend on these goods and services find their way into the hands of entrepreneurs who produce them most efficiently. Those dollars determine whether a particular entrepreneur will succeed or fail, whether he will earn a profit or suffer a loss, whether he will remain a small business in a tiny niche of the market or grow into a big business with a huge market share.

Mises points out that this process is continuous. Past success is no guarantee against future failure. The big successful business of years past often becomes today's bankruptcy because of its inability to keep up with the changing tastes and demands of the consumers.

Progressives intervene in the marketplace for a single reason: they disdain the choices made by the sovereign consumers. They use the coercive power of government to limit or change consumer choices. They pass laws which impose regulations and restrictions on consumers and producers alike. As a result, some goods and services which the consumers wish to buy are forced out of production while others, which the consumers do not want, are forced upon them.

When asked why they intervene into the free marketplace, Progressives offer a host of reasons: to guarantee public safety, to protect human health, to ensure public morality, to save the environment, to lower the price of politically sensitive goods and services, etc., etc. Progressives justify all of these interventions by arguing they are in the "public interest" or that they are for the "common good."

However, such justifications are absurd in light of how the capitalistic system of private property and free markets operates. In the system of private ownership of the means of production and consumer sovereignty, traders are absolutely free to exchange goods and services with whomever they wish on their own mutually agreeable terms. This freedom to trade or not to trade with any particular individual implies that when a trade is made both parties to the trade expect to benefit from the trade. If both parties do not expect to benefit, then the trade would not take place. This is obvious, common sense.

Consider an enormous free market with trillions of trades taking place every day between billions of buyers and sellers. The lack of government coercion in such a market ensures that all traders expect to benefit, i.e., each trader expects to be personally and subjectively better off and more satisfied after his particular trade than before. Does intervening in such a market in order to preserve the "common good" or protect the "public interest" make any sense at all? How can the "common good" or the "public interest" be interpreted as anything superior to the expected satisfaction of all?

Sunday Night Whimsy

Some of my favorite dance scenes from movies they're not making anymore...

Danny Kaye and Vera Ellen in "White Christmas"

Fred Astaire and Eleanor Powell tap dancing in "The Broadway Melody of 1940"

Fred Astaire and Marjorie Reynolds in "Holiday Inn"

Fred Astaire and Rita Hayworth in "You Were Never Lovelier"

Fred Astaire and Cyd Charisse in "The Band Wagon"

Fred Astaire and Ginger Rogers in "Roberta"