Why Gas Prices are Suddenly Falling

Every so often, it is fun to put my MBA hat on and delve into macro and microeconomic influences. To date, I have largely avoided the gas price issue, because articles are flying all over the place. That stated, when I see Biden officials take credit for recently falling gas prices, I decided to tackle the issue.  No, “President” Biden, you are not responsible for falling gas prices. 

The Biden Administration claims that a combination of his use of the strategic oil reserve and White House pressure on oil companies are causing gas prices to recently fall. Those are not the reasons for the sudden drop. To begin, we already tapped the strategic reserve in the fall, causing a pause in the upward trajectory for about a week. The strategic reserve has a minimum impact on oil prices. Additionally, all the so-called White House pressure on oil companies cannot magically create more oil. That would require Biden to reverse his anti-energy independence policies. So, what is happening? The Federal Reserve.

Oil is a dollar denominated currency. The more valuable the U.S. dollar, the lower the price of oil and reverse. The variety of leftist initiatives in the first year of the Biden Administration led to runaway inflation. Consequently, to reign in prices, the Fed has been forced to raise interest rates faster than it has in forty years. This caused a dollar appreciation trend. Anyone invested in euros, British pounds, or yen felt this acutely. Only the Russian ruble is gaining currency strength faster than the U.S. dollar. What does this mean?  Recession.

As the Fed is forced to raise interest rates, it will reverse a trend called “monetizing the debt.” Monetizing the debt is an attempt to cheapen the value of a country’s debt by weakening its own currency. In other words, if I owe you a dollar today, printing more dollars will make a dollar relatively worthless a week from now – when I pay you back that dollar. When you reverse that trend, you find yourself artificially creating deflationary pressure, thus your federal reserve has to go high, but not so high that you default on debt payments because the value of the currency appreciates too fast that debt payments outstrip government tax receipts. Meanwhile, banks are forced to constrict lending – from mortgages to business loans – because currency availability is reduced. This causes cash flow and liquidity concerns. Eventually, businesses, whether in home construction or large corporations, are forced to lay off workers to ensure spending is managed within their existing cash positions. Suddenly, your economy stops.

The only fix is to manipulate interest rates again or jump off the fiat bandwagon. Since the U.S. dollar is the global reserve currency, specie currency (such as a gold standard) is no longer an option, because the U.S. does not have the gold reserves necessary for a “call” on the currency. Imagine, for a moment, global banks turning their greenbacks into the U.S. for proportional amounts of gold or silver. This happened to Nixon, which is why we went back to the fluid fiat system – prone to manipulation and systemic collapse. In effect, the United States is in a trap of its own design. It can neither borrow its way out of the hole, manipulate interest rates to fill the hole, nor stop global exploitation by other central banks from occurring.

The last major country to try monetizing its debt on such a massive scale was Weimar Germany. Unlike Germany in the 1920s, more countries are tethered to the United States than post-World War I Germany. That means the global impact of a rapidly collapsing U.S. economy will be far more impactful. Of course, given the transgender insanity and homosexual deviancy of the current United States, we were already in Weimar levels of collapse. The only thing now is whether or not the South can secede before Washington, DC, drags Dixie down with it… or I brush up on my dormant Russian.

Padraig Martin

The son of a recent Irish immigrant and another with roots to Virginia since 1670.  I love both my Irish and Southern Nations with a passion.  Florida will always be my country. Dissident support here: Padraig Martin is Dixie on the Rocks (buymeacoffee.com)