The Rising Price Of the Falling Dollar

Oil prices as well as other energy prices have increased lately and this is due to the drop in the value of the dollar. Because of the dollar's role as the world reserve currency, all other currencies have been caught by the downward pull.

Written by Charles Kadlec - Forbes
Monday, May 14, 2012
Gold Standard Now

Restoring order to oil markets, stability to gasoline prices and legitimacy to government and markets requires a fundamental reform of our paper-dollar monetary system.

Do you know why the price of oil is above $100 a barrel and the price of gasoline is near $4 a gallon? Some blame oil companies. Others cite the threat of a military encounter that would disrupt the flow of oil from the Middle East. Speculators, too, are blamed for ostensibly bidding up the price of oil.

Yet, the basic reason for higher energy prices is being overlooked. Oil prices are up because the value of the dollar is down. Our common sense hides this source of higher prices because we view the dollar as fixed and prices as moving. Changes in the relative prices of goods and services occur because of shifts in supply and demand. But the value of the paper dollar also changes, usually in ways that are imperceptible over short periods of time. To see how the falling dollar has increased the price of oil, it helps to view price changes over a ten-year period. Since 2002 the price of a barrel of oil has increased nearly fourfold, to $103 on Apr. 20 from $26 in 2002. But if the dollar since 2002 had been as good as the:

• Chinese yuan, the price of oil today would be $78 and a gallon of regular gas would cost about $2.95;

• euro, the price of oil today would be $74 and regular gas about $2.80;

• Japanese yen, the price of oil today would be $67 and regular gas about $2.60;

• Swiss franc, the price of oil today would be $60 and regular gas about $2.40.

Even these results miss the full decline in the dollar--s value. Because of the dollar's role as the world's reserve currency, all other currencies have been caught by the downward pull of the debauched dollar.

What, then, would the price of oil be if since 2002 the dollar had been as good as gold? The price would be down $6, to about $20 a barrel, and the price of gasoline would be near a buck a gallon.

The debauch of the dollar also erodes our prosperity and our security. Since the final link between the dollar and gold was severed in 1971, the paper-dollar system has produced slower growth, higher average unemployment, deeper recessions and more frequent financial crises.

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