The Obama administration’s monetary policies have added approximately 56.5 cents to the price of every gallon of gas you pump, according to a report by Republicans on the congressional Joint Economic Committee report.
Estimates suggest that had the dollar maintained the value it had when Obama came into office, gasoline would cost approximately $3.40 per gallon instead of around $4 per gallon in many parts of the country.
“Analysts and pundits often cite, correctly or incorrectly, the turmoil in the Middle East, a strengthening global economy, or speculation as the causes for the run up in crude oil prices,” the report said. “What is rarely discussed as an important factor in the rise of the dollar price of oil is the role played by the dollar itself.”
The report attributes this increase to the Federal Reserve’s policy of increasing the money supply through the purchasing trillions worth of bank notes, treasury notes and mortgage-backed securities, known as quantitative easing, which it says has fueled inflation.
President Obama publicly defended the Fed’s decision to engage in quantitative easing last fall during the G20 Summit in India in the wake of Fed Chairman Ben Bernanke’s decision to print money to buy back $600 billion worth of government bonds in August 2010.
“It was designed to grow the economy,” the president told Bloomberg.
But former Fed Chairman Paul Volcker, a former top Obama economic adviser, warned last fall in an interview with Bloomberg that these policies could end up fueling inflation.
Longtime Fed Chief Alan Greenspan had a similar analysis, calling the Obama administration’s strategy that of “pursuing a policy of currency weakening”.
“Consumers continue to pay the price for the wrong monetary policy,” Texas Republican Rep. Kevin Brady, who serves as vice chairman of the Joint Economic Committee, told The Daily Caller. “The price you pay for oil is a natural indicator because there is a direct correlation between the weak dollar and increased inflation because oil is globally priced in dollars.”
Families are feeling the pain of inflation everywhere from the gas pumps to the supermarket as a result.
“The Fed worked hand-in-glove with treasury, and treasury worked hand-in-glove with the Fed,” Brady said. “Everything is so Washington-centric that it is holding back economic growth.”
According to the report, a barrel of oil averaged $42.40 at the end of 2008 before Obama came into office, but that same barrel of oil has averaged $115.84 in recent weeks ̶ an approximately 150 percent increase. It also says the price of a gallon of gas has increased by 146 percent from an average of $1.61 per gallon when George W. Bush left office to a national average of $3.93 per gallon today.
A comparison between the growth of oil prices between the U.S. dollar and various currencies such as the Canadian dollar show that oil prices in American dollars have increase by 150 percent since Obama became president compared with 95 percent just north of the border during the same time period.
The report estimates that had the dollar’s value remained constant around where it was when the Fed began its first round of quantitative easing in late 2008, a barrel of Brent crude oil would cost about $17.04 less than it does today.
Brady charged that the Fed’s monetary policy has become excessively politicized, contrary to its intended role as a nonpartisan entity. He has proposed several reforms including moving control of currency exchange rates from the Department of the Treasury to the Fed with the intent of depoliticizing it.
“The Fed needs to serve the function of providing price stability,” Brady said.
The American Petroleum Institute (API) sees things a bit differently.
The correlation between oil and gasoline prices is more indirect than the committee report would lead readers to believe, according to John Felmy, API’s chief economist.
“The decrease in the price of the dollar makes a barrel of oil cheaper in other currencies and can serve to increase demand,” Felmy said. “Oil supplying countries such as those of OPEC want higher prices to make up for the money they are losing because the dollar’s being worth less [than before].”
Felmy believes the growth of demand from industrializing nations such as China, India and Brazil has a greater impact on the price of a barrel of oil than American monetary policy does because they are increasingly competing for the same scarce resources.