Terry Mitchell

Raise Interest Rates to Lower Oil Prices



Posted: Wednesday, June 25, 2008

by
http://commenterry.blogs.com

It look's like today's oil prices are not being driven solely by the law of supply and demand. If they were, oil would be priced at about $70-80 a barrel right now, according to many experts. The U.S. dollar is currently depressed on world markets. This weak dollar seems to the culprit for the excess $60-70 per barrel that we are paying right now.

This situation has been exacerbated by commodities speculators, who are constantly trading futures and options on the U.S. dollar and on oil itself. Some people want to place limits on these speculators, but I don't think that's the way to go. Putting artificial limits on what people can do in a free market system almost always seems to backfire. Remember the wage and price controls of the 1970's? They were supposed limit inflation, but they had just the opposite effect.

I believe the thing to do is to raise interest rates dramatically. All of those interest rate cuts that have been made in the last several months in order to stimulate the economy have cheapened American money. This has in turn resulted in the dollar becoming weaker and weaker compared to other world currencies. Since the strength of the dollar appears to have an inverse relationship with the price of oil, this has resulted in oil prices going higher and higher.

Those rate cuts have not gotten us out the mortgage crisis and they have not stimulated the economy. They've only made oil and its by-products like gasoline much more expense. The Federal Reserve needs to start reversing this damage by instituting rate hikes of up to a half percentage point at a time over the next several months, beginning immediately.

The last time we had a real crisis in oil prices was back in 1979. Remember the "odd and even" days at the gas stations? The problem got fixed when interest rates began to rise dramatically. By the early 1980's, oil and gas prices were reasonable once again. And as that decade progressed, those prices continued to drop, even after interest rates started to go back down. In fact, I remember buying gas in my hometown for just 79 cents a gallon at one point in 1986, before oil prices began to go up again. If we raise interest rates, I believe history will repeat itself.

Terry Mitchell is a software engineer, freelance writer, amateur political analyst, and blogger from Virginia, USA. He posts a least one article a day to his blog - http://commenterry.blogs.com - on subjects such as current events, politics, technology, society and culture, religion, health and well-being, self improvement, personal finance, trivia, and sports. Terry is also the owner and operator of a website that is dedicated to allowing U.S. citizens to find all types of insurance at reasonable prices.  
 
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