The Obama Reelection Strategy: Increase Gas Prices to Crash Economy to Lower Gas Prices

Posted by PITHOCRATES - April 29th, 2011

The 2nd Largest Oil Reserves in the World

Saudi Arabia has the largest oil reserves in the world.  Take a guess who has the 2nd largest oil reserves in the world.  Kuwait?  Iraq?  Iran?  Libya?  Nigeria?  Venezuela?  Qatar?  Angola?  Algeria?  Ecuador?  United Arab Emirates?  No.  No.  No.  No.  No.  Uh…um, no.  No.  No.  No.  No.  No.  Could it be the United States?  It could be.  But it’s not.  With so much U.S. land off limits to drilling who knows how much oil they have.  So who has the second largest oil reserves in the world?  Here’s a hint.  Think Wayne Gretzky.  Who used to play on a team called the Oilers.  In the city of Edmonton.  In the province of Alberta.  In, of course, Canada.

Yes, Canada has the second largest oil reserves in the world.  But this oil reserve isn’t in pools underground waiting for someone to pump it up.  It’s in the Athabasca oil sands.  Think of hot oil spilled into sand which then cools into a thick tar.  Once upon a time this type of oil was worthless.  Because you just couldn’t drill for it and pump it.  You have to process this tar into useful oil.  And the cost to do this used to be prohibitive.  But with the price of oil today, this once worthless tar is now a very valuable form of crude oil.

America, the world’s largest economy, imports the majority of her oil from Canada.  In fact, the Canadians export more oil to the U.S. than they consume themselves.  Which is rather interesting when you consider Canadian gas prices are higher than American gas prices.  Now oil is oil.  And one would assume that the Canadians make their gasoline from the same oil we make our gasoline from.  Canadian oil.  Yet their gas prices are higher than in the U.S.  Why?  Because when it comes to their gasoline, they’re a lot like the Europeans.  They tax the bejesus out of it.  Taxes average about a third of the price at pump.

Even with all that Oil Canadian Gas Prices are High

With the world’s second largest oil reserves, one can’t blame the lack of supply for high prices.  They have supply.  So much that they export more than they use.  Could they have a refinery shortage?  If they did, they could fix that easily by building more refineries.  I mean, with the domestic oil reserves, the Canadians are in the driver’s seat when it comes to their gasoline prices.  It would be pretty darn hard for their gas prices to be ‘too high’ to affect their economy.  So how are the little guys doing in Canada?  The small business owners (see Rising fuel costs hit small businesses by Anita Elash posted 4/29/2011 on The Globe and Mail)?

Steak is off the menu, comfort food is in and prices are up by as much as 20 per cent at the Yellow Belly Brewery in St. John’s, Nfld., this spring, partly because of rising fuel costs.

Owner Brenda O’Reilly says her expenses have increased steadily since she opened her micro-brewery and gastro pub three years ago, but the sudden price hike at the gas pumps this year has been “the straw that broke the camel’s back.”

In addition to coping with higher labour costs and escalating commodity prices, her main supplier has slapped a steadily rising fuel surcharge, now up to $3.50, on every delivery – a cost that significantly cuts into profits.

I guess the price of Canadian gas can be ‘too high’. 

Forced menu changes and higher restaurant prices are just one of the ways record-high fuel costs are affecting small business this spring. Surveys for the Canadian Federation of Independent Business show that fuel costs are now the biggest concern for small business owners. Seventy-five per cent of members said they’re worried about rising fuel prices, compared to 50 per cent who were worried two years ago.

CFIB chief economist Ted Mallett said wide fluctuations in fuel prices over the past few years have created a lot of uncertainty for business owners and make planning especially difficult. Many have signed contracts or service agreements based on costs several months ago, and “if they guessed wrong about fuel prices, it comes out of their bottom line.”

These are the kind of problems they’re having in the U.S.  Because the Americans have no control over gas prices.  They are at the mercy of the oil exporters.  Exporters like Canada.  Which begs the question.  How can both the United States and Canada have such high gas prices?  If the Canadians are getting rich off of the Americans, they should be able to lower their own gas prices.  If they’re giving the oil away, then the Americans should be able to lower their gas prices.  It’s hard to imagine how the second largest oil reserves in the world results in high prices in both the U.S. and Canada.  Unless they’re both taxing the bejesus out of their gasoline.

High Gas Prices Kill Anemic Economic Recovery

The Canadian consumer is making things hard for Canadian small business.  And it’s no different in the U.S. (see Gas costs siphon off much of March rise in incomes by Martin Crutsinger, Associated Press, posted 4/29/2011 on USA Today).

Consumer spending had been expected to post solid gains this year, helped by stronger employment growth and a two percentage-point cut in Social Security payroll taxes. But Americans are paying more for gas, prompting economists to scale back their growth forecasts…

“The increase in prices is absorbing pretty much all of the windfall from the payroll tax cut,” said Paul Dales, an economist with Capital Economics. “If gasoline prices were to stop rising, real consumption could bounce back in the second quarter. But even then, jobs growth and wage growth are not strong enough to result in a significant and sustained acceleration in consumption growth. This economic recovery is going to continue to disappoint both this year and next.”

Consumers are spending more.  But they’re getting less.  Any extra disposable income is just paying for the higher cost of gasoline.  Which means consumer spending is flat.  And will remain flat.  For another two years.  Or more.  Because of the cost of gasoline.  The environmentalists may be happy.  But high gas prices are making the rest of us make a lot of sacrifices we’d rather not.  And it’s killing off what anemic economic recovery there was.

The Weak U.S. Dollar Increases World Oil Prices

There is a reason gasoline prices are soaring.  And it’s just not demand outpacing supply.  Though that is a huge part of it.  But it’s another government policy that is compounding the supply problem (see Oil edges up, but choppy, as weak dollar supports by Robert Gibbons posted 4/29/2011 on Reuters).

“Oil is reacting to the dollar…,” said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.

Higher interest rates in Europe compared to the U.S. have undermined support for the U.S. dollar, pushing up the euro by 11 percent so far this year.

The weak dollar also helped push spot gold to a new record as investors continued to seek alternative assets to hedge against inflation.

Thursday’s report that growth in the U.S. gross domestic product slowed more than expected to an annual rate of 1.8 percent in the first quarter from a fourth-quarter pace of 3.1 percent, reinforced the perception that the U.S. central bank will continue with its loose monetary policy.

It’s not the greedy oil companies.  Or their record profits driving up prices.  It’s Federal Reserve policy.  All that quantitative easing.  Printing money.  They just increased the money supply so much that they devalued the dollar.  Which gives us price inflation.  Where everything costs more because our money is worth less.  And we price oil in U.S. dollars in the international markets.  Which means American monetary policy is increasing world oil prices.  Not the oil companies.  Their getting obscenely rich is just a byproduct of loose U.S. monetary policy.

Oil’s price rise could be tempered by increasing evidence that high prices will erode demand.

U.S. consumer spending rose as households stretched to cover the higher cost for food and gasoline as inflation posted its biggest year-on-year rise in 10 months.

But all is not lost.  Oil prices will come down.  Like they did in 2008.  Because that’s what recessions do.  They lower prices.  When people don’t have jobs they don’t buy gas.  Which lowers demand.  And this lower demand will bring down gasoline prices.

If you Like Stagflation and Misery, Vote Obama

Perhaps this is the Obama reelection strategy.  Ramp up inflation to crash the economy.  Thus lowering gas prices.  It may work.  If people don’t mind another ‘worst recession’ since the Great Depression.  As long as gas is more affordable.  It’s a risky plan.  And it hasn’t had a successful track record.  It made Jimmy Carter a one-term president.  But perhaps Obama can succeed where Jimmy Carter failed. 

Interestingly, stagflation and economic misery are not the only things these presidents have in common.  Both were/are engaged in the Middle East, too.  Carter brought peace between Israel and Egypt while Obama has…

Perhaps they should consider another reelection strategy.

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