The cost of gas and the value of a dollar

Harbinger California is in the middle of a run up in gas prices. What in tarnation is happening to this petrol state?

I. Short-Term
The short term increase is easy to explain, fuel sold in California is special blend not sold in other states. Closed or hobbled refineries have a greater impact when out of state fuel cannot make up the difference. One solution is to switch to the winter blend early, which the Governor has ordered. Moonbeam saves the day!
But it was government mandated fuel blends that were in short supply, not oil and certainly not usable gasoline. Just the particular blend of additives that the State requires. This is part of the reason California has notably higher gas prices than surrounding states (most of the rest is higher gasoline taxes).

Many are quick to point out that the high gas prices are due mostly to the high price of crude oil. Here is a neat graph:
http://macromon.files.wordpress.com/2011/03/gallon-of-gas1.jpg
Breakdown of gasoline prices by category:
http://www.exxonmobilperspectives.com/2011/04/27/gas-prices-and-industry-earnings-a-few-things-to-think-about/article_495_-breakdownofagallonofgasoline/
Taxes: 12% (for roads, I guess)
Distribution / Marketing: 7% (Getting the gas to a gas station and operating said gas station)
Refining: 13% (Transforming crude oil into usable gasoline - no small feat)
Crude Oil: 68% (Exploration, extraction and delivery of crude to refinery)

Here “taxes” only refers to direct tax on the final gasoline sale, not the taxes associated with extraction of crude oil, or taxes paid by the gas station owner. Regulation is another form of taxation that costs consumers, but is often hidden from the calculation. Here, some percentage of the “refining” cost is paid to comply with fuel blend mandates. So the actual burden of taxes is much higher than 12% - but we are still missing the biggest tax of all...

II. Cost of Crude

After you see that 68% of the cost is crude oil - the next logical question is why are crude oil prices so high? Exxon has the kind of answer Americans like: “Well it is not rising as fast as most other commodities!”
http://www.exxonmobilperspectives.com/2011/04/27/gas-prices-and-industry-earnings-a-few-things-to-think-about/global-commodity-price-increases-v3/

This gives us a hint that the problem is larger than gasoline and crude oil.
The rising cost of crude oil is often blamed on low supply, high demand. The problem is, supply (of crude) is robust, demand is weak:
http://seekingalpha.com/article/677321-crude-oil-supply-exceeds-demand-for-the-first-time-in-a-decade

Besides - if all the prices are going up, then inflation is the culprit. It is not the supply and demand of gas that is the problem - it is the supply and demand of the dollar being used to buy the gas. There are lots more dollars, so they are all worth less :( These actions have consequences and we have been warned:

III. FED policy and its effects:

Money Supply booming, seeds of the next Greater Recession:

http://www.forbes.com/sites/michaelpollaro/2012/03/17/money-supply-booming-seeds-of-the-next-greater-recession/

Others will point to speculators and claim that their greediness is driving up the cost. But for every purchaser that buys speculating on higher prices, there is a seller, who is speculating on lower prices. There is another category of buyers, who purchase commodities because they are a better “store of value” than dollars. Here again, people acting to avoid the anticipated effects of dollar inflation.

This is more a of a problem recently, because other countries would pay for our inflation. It is/was called the “petrodollar”. Most oil producing countries agreed to only sell their oil for dollars. This created a world-wide demand for dollars and stabilized oil prices for dollar purchasers (us). Most countries figured out the scam and have started trading in non-dollar assets. This includes Iran - who we are now waging a currency war against (coincidence?) Inflation and militarism go hand-in-hand, but more on that another time. http://www.caseyresearch.com/cdd/demise-petrodollar

If the problem is not with the gas, but with the dollars - then gas prices, denominated in some other currency, should give a more accurate picture. Indeed, denominated in gold, gas is at all-time lows:
http://pricedingold.com/us-retail-gasoline/

What do we get for all this government intervention? Here are some warnings from posterity:

Thomas Paine:
“Paper money is like dram-drinking, it relieves for a moment by deceitful sensation, but gradually diminishes the natural heat, and leaves the body worse than it found it.”

Ludwig Von Mises:
“One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.”

Ernest Hemingway:
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

TLDR: High gas prices are partially the fault of government and mostly the fault of FED policies.

Further reading:

Government, Money, and International Politics

by Hanns Herman Hoppe
http://www2.units.it/etica/2003_2/hoppe.htm

War and Inflation
by Lew Rockwell
http://mises.org/daily/3010

The Presidential "Debate"

I don’t think it was a debate – but of course, Romney gave a better performance. 

That’s the key word: performance.

The script was mostly written by former party leaders, who now sit on the Commission on Presidential Debates. Some rules have included: “No props, notes, charts, diagrams, or other writings or other tangible things may be brought into the debate” at least, that was in the 2004 agreement. (You can thank Rose Perot for that - trying to bring visual aids to explain things - how silly) The commission is not releasing this year’s contract... Does that seem a little strange? The rules, the secrecy, the control? 

Here is a 4 minute Reality Check on the topic.

The main topic of the “debate” was the state economy and government spending. Each candidate had a deficit plan and the details of those plans were different. As I recall, the moderator pointed out that there was a “clear difference” between them, then encouraged both candidates to agree that there was a clear difference. Right. Got it. If you want analysis of their “plans”, here is another short Reality Check.

What is more important, is what neither of them mentioned:

1                -The federal reserve bank and the power of Congress to conduct oversight

2                -QE-3 / QE-Infinity –$80 Billion per month of currency creation

3                -Government and FED responsibility for housing crisis.

4                -Dollar losing/lost status as world reserve currency, affect on gas prices (petrodollar)

5                -The drought that has devastated the bread basket of our country.

Most importantly, neither candidate gave any statement of principle. Just repeating vague non-statements that we have already heard. Romney came close at 104:55 when he said: “The private market and individual responsibility always work best.” It sounded great, I agree! Too bad he already said at 47:40 – “You can’t have a free-market work if you don’t have regulation.” Well shoot. Either he does not know what a free market is, or he assumes his voters don’t. 

If you still think it was a debate, I submit as a comparison: a short debate about the national debt and economics that quickly gets to principles. This is a good journalist interviewing a Congressman.This is what a debate looks like.

In case you think this a hit piece - same journalist:

In depth interview with CNBC Economist/Former Economic Advisor Jared Bernstein