FORT FAIRFIELD JOURNAL

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By: JOSEPH GRINNELL &

DAVID DESCHESNE

FORT FAIRFIELD JOURNAL, December 5, 2007, p. 8

Now that the price of gas is over $3 per gallon and the price of a barrel of crude oil is running close to $100, it is time for the federal government to take drastic action.

If an electric company has to testify in front of a state commission to get permission to raise electric rates, oil companies should have to testify in front of a congressional committee to raise crude oil prices.

Few people like government regulations. However, reasonably-priced crude oil is vital to America's economy and its very survival. If the price of crude oil is too high, Americans ultimately cannot drive to work and low-income people will freeze to death during the winter.

The U.S. Congress and President George W. Bush should pass a crude oil law. The law could state that it will be illegal to sell a barrel of crude oil for more than $40 in the United States. The price could be higher. The important thing is for Congress to set a ceiling and not back down to foreign pressure.

At first, the Organization of the Petroleum Exporting Countries (OPEC) will cry bloody murder and impose another oil embargo just like in 1973. We've seen over (recent) time, weather forecasts and the fact that some obscure Saudi prince has a hangnail or a bad hair day drives prices up several dollars. All with no actual supply disruptions or real shortages involved. The market is being driven by fantasy and supposition divorced from reality, and that is a bad thing. You can't expect the laws of supply and demand to operate properly when the perception of each is simply left up to the imagination.

But is OPEC really the whole problem? In a lot of cases, speculators are driving the price of both crude oil and gasoline up with mass buying, then creating artificial "shortages" by holding onto their product then extorting the resultant excessive profits out of cash-strapped consumers.

Speculation is the engine that seems to be driving a large part of the inflated pricing in respect to oil. Generally, the only entities who can cope with the higher prices are paradoxically the ones causing the higher prices to begin with by continually throwing more money at the speculators. Like throwing gas on a fire to quench it, inflation can not be quashed with more money. Some of these entities who continue the problem are; governments, because they have the power to demand higher taxes at the barrel of a police officer’s gun in order to pay their own oil bills and fund LIHEAP; schools, because they enjoy operating inside the envelope of government coercion in relation to collection of revenues; large corporations who enjoy the benefit of government mandates insuring their profits - such as automobile insurance companies - and hospitals who benefit from government-collected Medicaid and legalized monopolies such as telephone, water and electricity providers. These entities have the power to extort more money from the citizenry to pay their own fuel bills, a power the rest of society does not enjoy. Since this enables the speculators to “get their price,” the rest of us are doomed to suffer.

Speculators are not a natural force in a consumer-driven marketplace and can be blamed for excessive pricing bubbles in the stock market, housing and now oil. All of which are now causing massive suffering to society as a whole.

The only power government truly has is that of coercion. It is true that to give them a taste of "price fixing" at the barrel of a government agent's gun (which is where all governmental power ultimately lies) is pretty dangerous and borders on fascism. However, some control over speculation should certainly be entertained. Rather than picking a price out of a hat and pointing a gun at people to enforce it, if the speculators could be reigned in, the prices might indeed level out to a more realistic number more closely reflecting the direct results of supply as it relates to consumer - not speculator - demand. Let the gas companies sell their oil/gas directly to consumers (through their distributors and gas stations, of course) instead of the artificial market of speculators as the middle men.

Speculators aside, the U.S. is dealing with a failing monetary unit in the Federal Reserve Note which, as it loses value on a daily basis, causes prices to rise to offset it. The Federal Reserve Note comes into being entirely by new debt and has lost over half of its value in the past 6 years due to excessive printing and circulating through bank loans, credit cards, bonds, T-bills, etc. because the total amount in circulation has more than doubled. The Fed's M-3 - a tally of the total amount of U.S. currency in circulation - was around $6 trillion a year or so ago, up from $3 trillion a few years prior. Last year, the Fed moved to make the M-3 numbers secret, which are now estimated around $13 trillion. By increasing the quantity in circulation, the Federal Reserve Note itself has lost most of its value since its inception and all prices have risen to adjust for it. Like baseball cards, the more you print, the less they’re worth. That is simple inflation in a nutshell.

This loss in purchasing power in the Federal Reserve note has not gone unnoticed. A Chinese central bank vice-director, Xu Jian, said the dollar was “losing its status as the world currency.”

According to the London newspaper, The Independent; “China has stockpiled £700bn worth of foreign currency, and has only to decide to slow its accumulation of dollars to weaken the currency further. Last month, in a humiliating turn of events, the central bank in Iraq, four years after the United States invaded, stated that it wished to diversify reserves from a reliance on dollars. Korea's central bank has urged shipbuilders to issue invoices in the local currency and take precautions against the weakened dollar, and three of the world's big oil exporters, Iran, Venezuela, and Russia, are demanding payment in euros rather than dollars. Iran insisted that Japan should make all its payments for oil in yen, rather than dollars.”

Warren Buffet, who is reputedly the richest man in the world, was asked on CNBC in October what he thought was the best currency in the world to own now. He answered: “Not the US dollar.”

A vast number of independent truckers in Maine are within mere weeks of shutting their trucks off and turning in their keys due to diesel prices that are now unbearable. It has been reported that some trucking companies have been paying for their fuel with credit cards, which are now maxed out, and should have been out of business a month ago.

In the November 19, 2007 Bangor Daily News, front page, a story was published about truckers meeting with their elected politicians in Lincoln, Maine to discuss the impending shutdown of the trucking industry in Maine. However, the solutions offered by Maine politicians in response to that looming truck stoppage are not "right now" solutions, some of which were:

1.) Negotiating with banks to extend credit so truckers may buy fuel on credit. This doesn't fix the problem, it merely extends interest-bearing loans to buy the fuel on credit, making it cost even more once the note comes due with interest.

2.) Bulk buying. Again, doesn't fix the underlying problem (of speculators), may shave a few cents off per gallon.

3.) Allowing drivers to work longer hours. Working longer hours in the run of a day will not solve the problem of higher prices; it will likely shave years off one's lifetime, though.

4.) Installing diesel fuel stops on logging roads. The argument here is the truckers won't have to drive miles out of their way to fuel up. We’re not sure what the statistics are, but are not convinced this is much of a solution to curbing the higher prices over the long run, or short run for that matter.

5.) Temporarily suspend fuel taxes. Temporary at best. It would only be until April, and does not address heating oil, or the root cause of speculation.

None of the solutions offered by Maine politicians to the local trucking industry were "right now" solutions, just band aids on a burst primary artery.

Limiting, or cutting out speculators' ability to profit was mentioned in an accompanying BDN article as existing in pending legislation, but due to the slow speed of Congressional action, will not deal with the immediate threat (within a few weeks) of a potential trucking shutdown in Maine.

As a compilation of supply tweaking by OPEC closing the nozzle, speculators artificially creating shortages and the continual devaluation of the tried-and-failed Federal Reserve note, the problem is "right now" and cannot wait for the cumbersome gears of legislation to churn out a solution many months hence.

We must also consider refining capacity, too. If demand is exceeding the ability of refineries to provide, then speculators aside, we will still have a problem. You can stack barrels of cheap crude up outside the refineries all day long but if they're operating at capacity (which most are) then they become a constricted funnel in the supply chain as more and more people desire product that currently has a finite production rate. However, during World War II the Army Corps of Engineers built a highway to Alaska in record time. They could be used again to build government-owned refineries on government land. After the crisis, they could be privatized.

Until OPEC surrenders and sells crude oil at prices laid down by Congress, Congress could pass a law allowing oil drilling and pipe-line laying in the Arctic Refuge and the restricted areas of the Gulf of Mexico. The survival of America trumps even the environmentalists’ concerns.

The U.S. government could lend or even give Canada whatever money or technical assistance it needs to fully exploit the bituminous sand fields in Alberta. Most Americans would rather send some money to their cousins in Canada than send money to some terrorist-sponsor states outside of North America.

A lot of the current oil price mess might be avoided in the future if roughly $7.3 trillion in M-2 could somehow be converted to a gold standard. If an American dollar went further abroad, the price of a barrel of crude oil could come down for Americans.

However, to make a dollar convertible into gold might make the flake of gold so small a microscope may be necessary to see it. So, to correct that, we could fall back to our original bi-metallic money system of gold and silver coin; using gold for the larger denominations and silver for the smaller. Silver speculators aside, this system functioned relatively well for the first 130 years of our union’s existence. Current U.S. silver and gold coin trades at a relatively accurate ratio of 50:1.

When it comes to using Fascist means to enforce a price, it can be argued that OPEC is a Fascist organization. A small number of oil ministers will meet and fix a price. That is not a free market, it's a monopoly - a monopoly our U.S. politicians have fostered and allowed to grow and develop into the monster it is today. We must reign in that monster and its sub-demons, profiteering speculators, if we are to survive at all under our current standard of living.

There is not much difference between the U.S. imposing a dictate on OPEC & oil speculators and President Kennedy imposing a quarantine on Cuba during the Cuban Missile Crisis, saying that any ship carrying missiles beyond a certain line in the water will be shot at. OPEC and speculators can destroy America's way of life almost as well as Khrushchev could have destroyed America's way of life with nuclear missiles.

Certainly, there are those who would submit, “Let the free market prevail.” To do that would require an oil-dependent society to abruptly go bankrupt, be unable to afford oil and be forced to stop purchasing it. While decreased demand always leads to lower prices, this decrease would be forced upon a society ill-equipped to handle it, save for a few Amish families, and could lead to catastrophic consequences. It is a function of government to protect their citizenry from such dangers.

The survival of our country is the most important thing here, and seeing to that is in many ways the government's primary job, is it not? Unfortunately this would take some genuine leadership on the part of our president and politicians, and that's the keystone that's missing here, so unfortunately, it likely won't happen.