Friday, June 19, 2009

Guess What? It's Still Broken!

After spending the last few weeks listening to the president and congressional leaders blather about how they've taken the necessary steps to fix our woeful economic system, I've got some news for them -- it's still broken! Price gouging has not abated, unelected individuals continue to manipulate the system and there doesn't seem to be any meaningful oversight at all. In essence, it's business as usual.

I'm sure you've noticed -- as I certainly have -- that gas prices at the pump have surged over the past six weeks. Well, you might respond, it's summer and people are traveling more. It's natural for gas prices to spike during this season.

And I would agree with you, except for one little fact -- According to Bloomberg, "Petroleum products demand in the U.S., the world’s largest energy user, fell 6 percent over the past four weeks to June 12 from a year ago".

This is not the way that Adam Smith described the workings of capitalism. When demand goes up, so do prices because, after awhile, the demand itself limits the supply. Conversely, when demand goes down, so too do prices because you have a glut of the supply. So, if the demand for gas is down, why are prices going up?

The wonderful people at Bloomberg provide the answer: "Investors have pushed oil higher by buying contracts as an inflation hedge to offset a decline in the dollar." In other words, speculators (those trying to make a quick buck) are manipulating the process just like they did with the housing market. It's the same old shtick as before.

And, according to the article cited, many analysts expect the price to increase even more by year's end! Consequently, as we enter autumn -- a time when the numbers of travelers falls off significantly -- even though demand will decrease, prices are expected to increase.

Isn't that just peachy?!

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