Reason #59: Over a Barrel

High gas prices are a huge story these days. The so-called experts in the mainstream media treat them like a natural disaster, a hurricane or some other act of god. They breathlessly report on every half cent rise in a gallon of gasoline, but they make no real attempt to explain why it’s happening. The closest they come to giving their audiences actual reasons for the problem is when they blame increased demand from China and India or tensions in the Middle East.

But like the dotcom bubble of the 1990’s or the housing crash earlier this decade, the oil boom is not an act of god. It’s a manmade calamity.

First of all, oil is traded in dollars. And, as I’ve talked about, because of our government’s habit of cutting interest rate cuts every time Wall Street needs a bailout, the value of the dollar is half of what it was just a few years ago. That rapid depreciation has caused foreign oil suppliers to raise prices just to break even. In other words, when we fill up our gas tanks now, all that extra cost is nothing more than an indirect bailout, a delayed bill for Wall Street’s orgy of profit-taking in the 1990’s and earlier this decade.

But the lower dollar, caused by Wall Street’s past greed, isn’t the only reason for the spike in oil prices. Wall Street’s present-day greed is hard at work bringing our nation’s economy to the brink of ruin once again. Since the housing bubble popped, big investors and financial firms have poured massive amounts of money into the oil market, pumping up the price of crude and making a tank of gasoline unaffordable to millions of Americans.

A lot of commentators and so-called experts blame increased demand from places like China for the sharp rise in prices. But investor Michael Masters pointed out to a Senate committee in May of 2008 that the amount of money speculators have pumped into the crude markets in the last five years almost matches China’s increased spending over the same period. In other words, greedy traders have inflated the cost of oil at nearly the same rate as the most populous country on earth!

You’d think our political leaders would want to protect our economy, and their constituents, from this kind of speculation-driven price shock. But on the contrary, in 2000, congress passed a law that exempted electronic energy trades from any government oversight. This shameful gift to the speculators is known as the “Enron loophole” because George W. Bush’s friend Ken Lay bought off enough politicians to make it happen. Congress has made some noises in recent months about closing it, but so-far, it remains wide open.[ii]

NEXT: Reason #60: Hedge Fund Madness