Fill her up!

I pulled up to my corner gas station and noticed that the price of gas had inched up ten cents more. Every day the price goes up by a few cents. It is now over three dollars a gallon. I thank God I no longer own the Toyota that only accepted premium gasoline. If I tried to cheat and mix it with lower grades, it sputtered and jerked unhappily until it stopped.

I noticed the few Prius owners giving me superior looks of "I am saving the planet, why are you driving something else?" I am picturing the huge battery in the trunk of a hybrid that is very toxic and expensive to dispose of, actually causing more damage to the environment than my conventional exhaust spewing engine. Who thinks that a Prius is a nice-looking, muscle car?

I asked the gas station owner why his prices are going up every day. He tells me that there is a tacit collusion between owners, he would get chewed if he did not charge the same price as the other owners. As far as why he thinks gas is going up, he shrugs his shoulders and goes about his morning routine.

I am thinking of OPEC and their overt collusive successful attempts of controlling oil prices and production. The 11-member Organization of Petroleum Exporting Countries has reduced production of oil times and times again in the interest of raising prices world-wide. In a sense, since they are producing 40% of the world's oil production, they have the power to control how we live and what we pay to fuel our economy.

OPEC is a cartel and economists in general view cartels as terrible forms of market organization as it is inefficient and flies in the face of consumer welfare. They control somewhat the price and certainly the flow of oil. History has shown that price controls on various commodities have caused painful shortages.

A war in 1973 between Israel and Arab nations caused OPEC to quadruple oil prices. Prices of raw materials shot through the roof while food prices increased as well in part due to poor harvests in various parts of the world. As energy became more expensive, businesses cut back, causing a reduction in productivity and thus a recession.

Things are never as simple as they seem because there are too many variables coming into play. If one adds enough variables, just about every economic theory proves to be wrong and so are the textbooks espousing them.

In 1933, President Franklin Roosevelt established that the U.S. would buy and sell gold at the constant rate of $35 per ounce. Officials at Bretton Woods conference in New Hampshire turned to the dollar as the basis for a new international economic order after World War II since the U.S. held the lion's share of the world's gold reserves.

When Richard Nixon ended in 1971 the dollar to gold convertibility, Pandora's box of ills was opened wide. The dollar had been fixed at $35 per gold ounce for a long time. Anybody knew how to convert foreign currencies on any given day into gold and into dollars. There was no fluctuation between currencies on a day by day basis. Money was always worth a certain amount of silver and gold and that never changed.

Nixon opened a huge can of worms, allowing politicians in Washington to print paper dollars out of thin air, without any backing by goods and services, thus causing inflation. And the out-of-control spending began.

Gold is a commodity in relative short supply as all the gold that was ever mined can fit into the cargo hold of a large petroleum tanker. We are not likely to find any huge reserves to be mined any time soon. Mining for gold is a very painstaking and expensive process as it takes the removal of tones of dirt and/or stone to harvest one ounce of gold. Gold prices go up and down, currently most up, in the stratosphere of $1,300 plus per ounce, but its worth as commodity money never changes. It is the value of the dollar with which gold is purchased that fluctuates wildly since the dollar is a currency deemed "worthy" by "fiat" by the American government. "Fiat" is a Latin term for "let it be." Otherwise the dollar is only worth the cotton/linen paper it is printed on and the labor and ink involved in printing it. The wild fluctuation in value has to do with the amount of currency in circulation and the faith and trust in American government and its investments.

The worth of a currency is determined by many factors such as inflation, demand for investment and goods in a specific country, interest rates in that country, just to name a few. The most interesting variable that makes a currency desirable or not desirable to have is the faith in the government of that country and the political stability of its government. We all know right now how much faith American people have in their own government, its policies, and its ability to run the country. If Americans don't trust their government, how worthy is the U.S. dollar? If public confidence sinks, the dollar devalues. This devaluation of the dollar by printing money without backing of goods and services is called inflation. And the Federal Reserve System, our central bank, is doing just that at the moment, in order to deal with the vast spending that the 111th Congress engaged in 2010. As a matter of fact, this Congress has spent more this year than all the previous 110 Congresses had.

Complicating the picture are petrodollars, or oil dollars. Petrodollars are U.S. dollars earned by a country from the sale of petroleum. The term was coined in 1973 by Ibrahim Oweiss, a professor at Georgetown University.

The Bretton Woods conference in New Hampshire established the dollar as the world's "reserve currency." This is a fly in the ointment because oil is bought all over the world using the U.S. dollar as an international currency, a global medium of exchange. OPEC keeps increasing the price of crude to guard themselves against future drops in the value of the U.S. dollar which is the international currency that oil trades in.

If the U.S. allows the free fall of the dollar by printing huge amounts to deal with its government out-of-control spending, OPEC sees its revenues plunge and has no other choice but to raise oil prices. Add to the problem the speculating on the Chicago Board of Trade of oil, currency, and gold commodities futures and you have a severe crisis.

Since gold is a reliable commodity, people are buying it in larger quantities, including oil rich Arabs who see their dollar holdings worth less, day by day, thanks to the American government's inept handling of the economy and out-of-control spending. Whether this is done on purpose to bankrupt our country, that is another issue.

After 1971, U.S. could buy crude oil for as little as $1 a barrel - now it is approaching $100 a barrel. Consumers could buy premium gas for as little as 28 cents a gallon in the early 70s. Gasoline is now approaching $4 a gallon in some states.

Are we a self-sufficient nation that could drill its way out of this problem instead of shipping our wealth and prosperity to oil rich nations who wish as harm? The seven year moratorium on drilling in the U.S. imposed recently by the Obama administration certainly dooms our ability to become self-sufficient in oil production. Many nations such as China, Russia, Cuba, Vietnam, Venezuela, Brazil, to name just a few, are furiously buying oil leases and drilling in the Gulf of Mexico, right in our own back yards, exploiting our reserves while we are forbidden by our own government to drill.

There are rich oil shales that could be exploited as well, but environmentalists lobby Congress constantly to forbid drilling and exploration in their zealous attempt to either protect the environment or some endangered species of rodent, amphibian, bird, or fish. In the process, the interest of protecting humans becomes irrelevant as humans are seen as more expendable. According to environmentalists, there are almost 7 billion of us, and we are straining the resources of the planet. White House czars advise that population must be culled drastically in order to reduce the permanent damage we cause to the environment by our mere existence.

As we watch the price of oil escalate yet again, our economy and standard of living will suffer immeasurably, since crude oil is the engine that drives the energy behind our productivity. Our way of life and survivability are inexorably threatened.