Letter to the editor:

Factor devaluation in gas price increases

John W. Pack, Las Vegas

Fri, Jul 25, 2008 (2:02 a.m.)

Pity the poor Europeans? No, pity us.

My wife and I just returned from a three-week trip to Europe. Taking advantage of Volvo’s generous overseas delivery program, we picked up a new car at its factory in Gothenburg, Sweden, and drove it nearly 2,000 miles, through six countries, to Italy.

Every time we filled up the tank we mourned the poor Europeans. Wow! They’re paying more than $9 a gallon.

After we got home, I did a little research, and now I’m thinking our pity was misdirected.

Throughout Europe, gas was selling for about 1.5 euros per liter. There are roughly 4 liters to a gallon, so the Europeans are paying about 6 euros per gallon. With the dollar trading at about 1.6 per euro, that translates to more than $9 a gallon.

But wait a minute. Before George W. Bush’s presidency, the euro was worth only about 80 cents. Thanks to our enormous trade imbalance and deficit spending, in part from funding a war with borrowed money, the world has lost faith in the greenback.

So our currency has halved in value over that time versus the euro. While we have seen the price of oil quadruple in terms of dollars, the Europeans have seen it barely double.

Thanks, Mr. Decider.

Discussion: 6 comments so far…

By KDR81

7/25/08 at 8:39 a.m.

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Actually, I believe a reduction in our trade deficit implies a devaluing of the dollar. Our trade deficit had been growing signaling the strength of the dollar and the value of investing in America.

A weakening economy, government borrowing (via Fed policies, ie increasing the money supply) and poor regulation choices have helped devalue the dollar, which ironically is something the Democrats and Rockefeller-Republicans have wanted for some time.
By sooo_gothic

7/25/08 at 8:58 a.m.

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I think the trade deficit means we bring in more than we send out. Therefore, more money is going out than is going in, which helps devalue the dollar. I only had one class in econ, but I think that's how it goes. Really we should start trying to produce more cheap junk here versus sending all that money to China.
By uddeboda

7/25/08 at 9:16 a.m.

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John, good point you made, and the real problem is the fall in value of the dollar, and it wont help by printing more green backs. The USA economy is in real trouble. Hope you enjoy your Volvo, Trevligt resa från Sverige, Sweden
By KDR81

7/25/08 at 12:01 p.m.

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The trade deficit means America is importing more than we export.

We are importing more because the dollar is strong and Americans can buy foreign stuff cheaply.

Trade deficits don't capture capital investments however, so they're misleading. Foreigners don't buy US products as much because they're more expensive with a strong dollar. Instead they buy U.S. capital such as property, stocks, and US bonds.

The money has to come full circle, otherwise we're shipping out green pieces of paper and getting Honda's in return. That would be sweet but the Japanese aren't that stupid.
By JohnF

7/25/08 at 9:43 p.m.

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Actually, if the dollar was strong we would be able to buy more things with it. We can buy fewer Euros with the dollar today than we could one year ago. Therefore, the dollar is weak against the Euro. Very weak. Ask anyone who's travelled to Europe this summer whether their dollars bought much.
By thebs

7/25/08 at 10:45 p.m.

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Five years ago, a dollar could net you nearly one Euro. Today, a dollar nets .63 Euros.

http://finance.yahoo.com/currency/conver...

JohnF is right, the dollar is weak, which adds to the dire outlook of oil prices.

It doesn't help that the Republicans filibustered legislation today to close the Enron Loophole that allows deregulated speculation of the oil market... parliamentary tricks which prove the Republicans would rather campaign on the public's pain at the pump, rather than pass legislation to address it.

Many try to boil oil prices down to a simple supply/demand relationship, but the past two weeks have shown that couldn't be further from the truth. The rapid 15% drop in oil prices over the past few weeks do not reflect a 15% drop in demand, nor a 15% increase in supply. Commodities speculation has driven the price of crude to record levels, and only after the Democratic congress began to debate legislation to reign in unregulated commodities trading have we seen the price of crude correct itself.

The deregulated speculation, brought to us by "McCain's Economic Brain" Phil Gramm, is a major factor in the price of oil, and Americans should be concerned with Gramm's influence over McCain's economic policies.

They should also demand that the Republicans step up to the plate and call for an end to the Enron Loophole they wrote into law.