There's been a lot of hand-wringing going on among economists and politicians, and a lot of fuming at the gas pump by consumers over the soaring price of oil over the last two years.
Increasingly, concern is being expressed by treasury officials and economists about the negative impact soaring oil prices and related gas prices could have on the overall economy. Politicians--especially Republicans--are also fretting, since the thousands of extra dollars consumers are now spending on electricity, home heating and gasoline have, for all but the wealthiest taxpayers, more than cancelled out any minimal benefits they saw from the president's tax cuts.
What's wrong with this picture?
The focus of all this anger and angst is oil prices. As a result, everyone is looking at culprits in the wrong place, blaming wasteful energy use, OPEC production quotas, monopolistic oil companies and/or conniving oil traders.
In fact the real culprit behind these higher oil prices is the Bush Administration, which, thanks to its massive deficits and tax give-aways to the rich and corporations, to its war spending, and to its failure to combat unprecedented and ever-larger trade deficits, has been causing the dollar to plunge in value.
Oil is a commodity and it is priced in dollars. If dollars decline in value, then the price of oil will rise in inverse proportion.
One need only look at Europe to see what this means.
Over the period from February 1, 2003, just before the start of the Iraq War, when oil prices began to rise in earnest, to Feb. 1, 2005, the price of a barrel of oil in dollars rose about 30 percent, from $30.13 a barrel to $42.91 a barrel. But over that same period of time, the Euro, Europe's new combined currency, rose 21 percent against the U.S. dollar, from .93 Euros to the dollar in February, 2003 to just .77 to the U.S. dollar in February, 2005.
For Europeans, then, the net rise in oil prices over the two years of the Iraq War has been just 9 percent, or less than 5 percent per year--hardly the kind of energy inflation that would cause economic problems.
And this situation is likely to get only worse. Some Wall Street oil industry analysts are now predicting that oil could, before too long, hit $100 a barrel. What they are saying really is that the dollar is likely to fall in value by 50 percent.
Should that happen, though, the OPEC states would likely at some point along the way decide that it is ridiculous for them to continue pricing oil in dollars, since the piles of dollars filling their bank vaults will be losing value faster than their oil wells are being drained.
At some point, the oil producing states, including Russia and Norway, will inevitably switch to pricing their oil in a basket of currencies--a basket that would prominently feature the Euro and probably the Japanese Yen.
At that point there would be little left to prop up the dollar, and it could end up becoming little better than a Third World currency.
For the rest of this column and other stories by Lindorff, please go (at no charge) to This Can't Be Happening! .