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Friday, June 13, 2008

Smokey Briggs

Sage Views

By Smokey Briggs

Just why is
gasoline $4 a gallon?

Is anybody out there old enough to remember the last time gasoline prices rocketed through the roof? Or, if you are too young to remember, have you read about it?

Before you get sucked in by the television talking heads and government hucksters babbling about evil speculators and such being responsible for our gasoline misery, let me refresh your memory:

On August 15, 1971, President Richard Nixon ended America’s last tie to the gold standard. In effect, he declared the United States bankrupt, ending 30 years of U. S. dollar strength as the only currency in the world with some tie to a gold standard.

Why did he do this? Because the Federal Reserve, at the command of the president and congress, had been inflating the supply of U.S. dollars at an unprecedented rate for ten years to pay for all the new social programs dreamed up in the 60’s, and ten years of war in Viet Nam. You see, our politicians spend far more money than they actually steal from us through taxes, Democrat and Republican alike.

Hard to believe, but true. And, they have to get the money from somewhere.

Leaving out all the sleight of hand and mirrors, the simple answer is that the Federal Reserve creates the money, and then the government spends it.

The only problem is that with every new dollar created, all the other dollars already out there become worth less. Those would be the ones in your checkbook.

That is all inflation is. Look it up in Webster’s, it’s right there.

So, Nixon had a problem. The world’s governments were getting a whiff of just how fast we were inflating, and decided to cash in their dollars for the non-inflating gold stored in Ft. Knox.

While us plain-old citizens were not allowed to do so since the 1930s, from the late 1940s the U.S. had promised foreign governments that we would redeem our greenbacks in gold if they ever wanted to do so.

By 1970 we had inflated the greenback to the point that the gold at Ft. Knox only covered about 22 percent of the greenbacks circulating.

Governments the world over got wind of this and decided that they would trade in their falling dollars for good old gold.

We could not redeem the dollars as promised and Nixon had to end the gold backed promise of American money – in effect we declared bankruptcy.

Now, despite our joy in viewing Arabs as near sub-humans with an unnatural affection for camels, the truth is, whatever else they are, they are smart enough to know when they are getting ripped off.

If you check the timeline, you will see that about the same time the rest of the world started trying to trade in their greenbacks for Ft. Knox gold, the Arabs started raising oil prices.


Because they figured out that the greenbacks they were accepting for oil were worth less and less everyday. So, they wanted more of them for their crude. Go figure.

On the same day Nixon declared us bankrupt, he also instituted wage and price controls. Such controls are one of the last stupid acts of stupid politicians trying to fix the very problems they created.

Now, the official line has always been that the Arab Oil Embargo of 1973, following Israel’s whipping of the Arab world in the Yom Kippur War (with our help), was the cause of the fuel crisis of the early 1970s.

It just is not so.

What caused the fuel crisis were Nixon’s price controls that prevented oil companies from passing on the full, rising cost of refined gasoline to the consumer. Not being able to make back their costs, Big Oil did the only sensible thing, and cut back the amount of oil it was importing.

Now that seems like a no-brainer to me. If the government told me I could not charge enough for a newspaper to make a profit, but I could sell newspapers in Europe for a better price, where would I sell my newspapers?

Where would you sell your goods?

The Arab oil embargo could not stop oil from coming into the United States – the worldwide oil trading market is simply too big for them to actually make that stick. Oil just went through different channels and they admit this in retrospect.

Oil shipments were available for import, but nobody was willing to import the stuff.

But government price controls did manage to do what the Arabs could not, curb importation of oil. These price controls were meant to hide the inflating cost of goods including gasoline that were inflating because of government-caused inflation.

Oil companies worldwide just sat on crude or sold it in other markets where profits were not artificially depressed.

That’s what I would do. You too, I bet.

So let’s see, in the early 1970s we were at the end of a protracted, undeclared war and politicians were spending money on social programs and war materials so fast that actual tax revenues could not begin to pay the bill. To pay the bill the government was inflating the money supply at an unprecedented rate.

And crude oil prices worldwide went through the roof.

Let’s fast forward a bit.

Today, we’ve been in an undeclared war for five years, and our politicians are spending money on social programs and war materials so fast that actual tax revenues do not even begin to pay the bill.

I don’t care what the official news outlets say; the bill is being paid with inflated dollars. General Dynamics and OPEC don’t produce F-16’s or crude oil as philanthropic pursuits. They like profit. And now the price of oil is going through the roof.

Hmmmm, I wonder if there is a connection?

All we need now is some government bimbo to try to “control” the price of fuel and history will be perfectly repeating itself. Of course, the price will not be controlled, but you can bet the government meddling will create a shortage and you will have trouble buying fuel at all – at any price.

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