29 December 2007

Oil Rising and Dollar Falling

Here is the news which started the most recent slide in the Dollar and the renewed surge in oil prices:

Saudi minister warns of dollar collapse Saturday, 17th November 2007: "The dollar could collapse if OPEC officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned. Prince Saud Al-Faisal was overheard ruling out a proposal from Iran and Venezuela to discuss pricing crude in a private meeting at the oil cartel's conference. In an embarrassing blunder at the meeting in Riyadh, ministers' microphones were not cut off during a key closed meeting, and Prince Al-Faisal was heard saying: 'My feeling is that the mere mention that the OPEC countries are studying the issue of the dollar is itself going to have an impact that endangers the interests of the countries. There will be journalists who will seize on this point and we don't want the dollar to collapse instead of doing something good for OPEC.'"

We should ask ourselves, how is it that America - the supposed greatest nation on earth - is economically tazered by a simple news blurb quoting a 3rd world oil minister?

The recent rise in oil and decline in the dollar is a symptom of an illegal intervention by our government 36 years ago: President Nixon, on August 15, 1971, officially and illegally took America off the gold standard by unilaterally ending the post WWII Bretton Woods Agreement (which bound signatory nations to settle their debts in gold). The reason Nixon and the government took this spurious action of ending Bretton Woods was because our gold reserves were utterly depleted due to massive government spending on warfare (Vietnam) and welfare (Great Society) wealth redistribution schemes. The economic result of this illegal action was run-away inflation and shortages of products we imported - mainly oil. I can still remember the gas lines of the early '1970's at my dad's gas station. Since supply was unreliable, my dad would only sell gas to customers he knew. Everyone else was told we were out of gasoline. There were far fewer cars on the road in our town of about 80,000, which made it seem empty. Fear was in the air because it was a sad and uncertain time. A way of life we had become accustomed to was coming to an end.

Our trading partners lost confidence in the Dollar and started dumping them onto the market. The government desperately needed something real to back the Dollar and to cover up its disastrous economic intervention. They made a deal with the Devil - OPEC, primarily the Saudis - in order to restore confidence in our flagging currency by forcing other countries to take the Dollar. The Saudis promised to price their oil in Dollars in exchange for our military protection and continued energy dependence on them. This is why America is so interested in the Middle East and why our own government uses regulations (force) to make it difficult to develop new domestic oil and gas resources. Of course, our politicians love it because simply printing money to fund useless government programs is far easier than directly taxing the people, never mind the dire economic consequences.

As we daily witness our depreciating currency and the consequent dramatic rise in commodity prices, it is obvious that the problem of an unbacked dollar was not solved by our deal with OPEC. It was simply swept under the rug in the hope that it would just go away. It was a deal between governments, not free markets. And it was a deal doomed to failure because governments never keep their word and, when faced with the repercussions of their actions, always blame someone else (usually the ones victimized by their actions). So, instead of admitting to causing inflation through its wholesale printing of worthless slips of green-inked paper, the government instead accuses us of driving too much in our big cars; they say we live too lavishly in our big houses; and they say our demand for higher wages are driving up prices of things like food and energy. The economic truth, however, is that we are suffering from the government's outright illegal increase of the money supply. Government doing this drives up prices because as it prints and spends unbacked dollars, every other dollar in circulation - the ones you and I have in our pockets - loses value while the "real" items we want to buy retain their value. When government blames us, they are simply employing the tactic of distraction. It is similar to a rapist blaming the woman for his inability to control himself. The government is raping us of our wealth through inflation and blaming us for its inability to control its spending.

The cure for all of this is to eliminate government intervention in our markets and take away its monopoly power of creating money. We need to be on a gold standard to put a natural limit on government and its power. Inflation will be stopped - thus preserving the value of our currency - and integrity and price stability will return to the markets. Of course, even our Founders knew these principles through their experience with the hyper-inflated Continental Dollar, and thus wrote in the Constitution that all money should be gold and silver. We would do well to learn from their wisdom.

(other articles are archived on my Writings page.)

Rebecca Iocca

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