Strengthen dollar to lower gas prices
Published: Sunday, March 18, 2012
Updated: Monday, March 19, 2012 12:03
With 90 percent of its students living off campus, UCF is one of the largest commuter campuses in the nation. After a 31-cent rise in gasoline prices in the past month, many students are beginning to feel some major pain at the pump.
What is causing this swift and sudden hike in fuel prices?
Pundits point toward rising tensions in the Middle East when placing the blame for the rising price of gas. If the situation in Syria worsens or if conflict spreads into Iran, the supply of crude oil from the region will shrink, causing prices to rise here at home.
Wall Street certainly doesn’t help this problem. As trouble in the Middle East looms and demand seems likely to increase, investors bet on higher oil prices in the future. These financial speculators account for 64 percent of all oil contracts, according to an op-ed by Robert Reich at truth-out.org.
Gas prices also have something to do with White House policies. President Barack Obama’s energy plan focuses on subsidizing select power industries and products, rather than boosting domestic oil production. Now the president could be forced to tap into the nation’s Strategic Oil Reserves to quell backlash from the public that is manifesting in the latest dip in his poll numbers.
Outside of harming Obama’s reelection bid, higher gas prices bode more economic misery. According to the Associated Press, “fears are now mounting that gas prices could begin to weaken consumer confidence.” If Americans start spending less, businesses will suffer and the economic recovery could stutter or stall.
As gas prices continue to rise, drivers have less and less money to spend on things like groceries and other goods. To make matters worse, mild inflation has caused a steady rise in grocery prices over the last two years. Hopefully, that trend will begin to level off. If it doesn’t, inflation could spell disaster.
This problem of inflation is perhaps the biggest factor in rising gas prices. Monetary policy set forth by the Federal Reserve is keeping the benchmark interest rate at record lows near 0 percent. This increases the supply of money – something that can help boost economic recovery. But a federal funds rate near zero also risks inflation by continuing to devalue our nation’s currency, the U.S. dollar.
Because the U.S. dollar acts as the world’s reserve currency, most other countries must first purchase dollars before they can buy oil. If the value of the dollar continues to diminish relative to other currencies, oil will continue to become more expensive.
The president and Congress should urge the Federal Reserve to increase the federal funds rate in order to slow or halt the rising cost of gas. While this step will contract the money supply, it will also curb inflation and provide relief to many Americans, especially college students, who have a limited amount of disposable income to begin with.