Rising Energy Prices and the Falling Dollar




by Ron Paul

Oil prices are on the minds of many Americans as gas hits $4 a gallon, and continues to surge. How high can prices go? How can we solve these problems? What, or who, is to blame?

Part of the answer lies in understanding bubbles and monetary inflation, but especially the Federal Reserve System. The Federal Reserve is charged with controlling inflation through interest rate manipulation, however, many fail to realize that creating money, and therefore inflation, is really its only tool. When the Federal Reserve inflates the dollar as drastically as it has in the past few decades, the first users of the newly created money go in search of investments for their dollars. They must invest this money quickly and aggressively before it loses value. This causes certain sectors to expand beyond what would naturally occur in the free market. Eventually the sector overheats and the bubble bursts. Overinvestment in dotcoms eventually led to a collapse of the NASDAQ. Next we had the housing bubble, and now we are seeing the price of oil being bid up in the creation of another new bubble. Investors are now looking to commodities like oil, for stability and growth as they pull capital out of real estate. This increased demand for investment vehicles related to oil contributes to driving up the price of the actual product.

If the Fed continues with its bubble blowing policies of the past, the new commodities bubble will continue to grow, gas prices will continue to go up, as the value of your dollars go down. We will see an overinvestment in these commodities as solutions are desperately sought for a supply shortage, which is only part of the problem. Make no mistake, though, this is not the free market at work. Government manipulations have added levels of complication and unintended consequences to the marketplace.

This is not the time for members of Congress to take political potshots at each other, or to imagine that the free market is somehow to blame. This is the time to understand and fix problems. That begins with making sure the decision makers have a firm grasp on the causes of the problems and possible effects of their decisions. This is absolutely crucial if we want to get it right this time. That is why I am in the process of calling for hearings on Capitol Hill on how the falling value of the dollar affects energy prices.

Governments need to get out of the way and let the people get back to work so that we can get our economy back on stable footing. Our destructive regulatory environment, confiscatory tax policies, and managed, rather than free trade have chased many businesses overseas. The bottom line is average Americans are being seriously hurt by these flawed policies, and they are not getting good information about the true dynamics at work. The important thing now is to get the diagnosis absolutely correct so we can administer the appropriate treatment and move on to a healthier economic future. To do this it is absolutely necessary to address the subjects of central banking and fiat money.



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2 Comments:

  1. Back in the 70s, I happened upon a copy of the book "Limits to Growth" by the Club of Rome. The book was very controversial and stimulated a great deal of work in computer modeling. One of the implications discussed in the book was that the world would run out of oil at some point not in the distant future.

    Now that we're paying over $4.00 a gallon for gas, more people are believers that we have an energy problem to solve. In the interest of preserving a decent way of life for my children and grandchildren, I've formulated the following plan:

    1. Rather than seeking more ways to get oil, make a national decision to convert all possible machines to use electric power.

    2. Ensure that all generating plants for electricity use clean, non-fossil fuel sources of power, including nuclear, hydro, solar, wind, and tides.

    3. Utilize and enhance the current infrastructure of gas stations to swap out batteries as a new form of refueling. This will require a few standard types of batteries that can be quickly replaced and recharged by the stations.

    I'm convinced that, if America mounts an Apollo-like program to accomplish this plan, it can be accomplished within a decade. Big Oil will balk and try to be a hindering force, but they can get in on the action in transforming the infrastructure and make their money.

    Ships and trains can be powered by nuclear reactors, but I'm not sure what replacement power source would be appropriate for airplanes. I am sure that all issues can be solved if the national will is behind the effort and the resources are available.

    We've been refusing to take on the energy problem, but the time is now, or never.

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  2. Why are Paul supporters voting against Mike in the vp poll and trying to tear down hucksarmy? We are peacefully working for our guy and have nothing against Paul. Mike has always treated Paul with respect and I can't imagine why you are trying to attack us and vote against Mike. It is also not right for you to pretend to be Romney supporters attacking Huck. Romney would never have anything to do with that, nor will Paul if he knows. You are trying to further divide the Republican party but it is backfiring. We will unite, McCain, Romney and Huckabee supporters against cheating and people who are not working for a cause but against another.....

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