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May 16, 2008

Why Gasoline Is Really Rising
by Michael Kilbach

In an attempt to force lower gasoline prices we get many email forwards from frustrated consumers trying to organize a short term boycott against "greedy" oil companies. Consumers are clearly aggravated with these high prices, but the strategies for change that they suggest are flawed. This short article is designed to redirect this consumer frustration toward what we believe is the main cause of the problem and to offer a potential solution.

More Currency = A Less Valuable Currency = Higher Prices

1) The cost of gas and the cost of oil are rising, and we believe the main reason for this occurrence is that our nation's currencies are dropping in value.

The above example shows that the price of oil is going up faster in US dollars than it is in other currencies. This is because the US dollar is dropping in value relative to these currencies. The difference between the increases in the price of oil in various currencies illustrates how the value of the currency, the measuring stick, is just as important to the price of oil as the value of the oil which is being measured. Why is the price of oil rising in all currencies?

2) Most analysts, consumers and investors agree that the US dollar is falling and the Euro is rising. All currencies are measured against the US dollar and generally speaking all major currencies are losing value. We believe that foreign currencies only appear to be rising because they are measured against a falling US dollar. The Euro and the Canadian dollar are both examples of currencies that are continually losing purchasing power, but appear strong, simply because they are measured against the moving US currency.

Example:
World wide it generally takes more currency to purchase "things" such as gas, food, power, housing, electricity, education, insurance, land, metals, lumber, labor and so on, including oil.

In other words, currencies such as the Euro and the Canadian dollar may be rising relative to the US dollar but they are also getting less valuable as they purchase less "things". This loss of value makes oil more expensive. But why are our currencies losing value?

3) Our currencies have been increasing in quantity which causes them to lose value. If there are more dollars, each individual dollar will become less valuable. As a result the price of "things" that currencies purchase, such as oil and gasoline, will go up. This explanation of a complex topic is short and simple. The main point to remember is that the cost of gas at the pump is a reflection of both the value of oil as well as the value of the currency measuring it.

More Currency = A Less Valuable Currency = Higher Prices

It is our opinion that Governments and Central banks are the reason currencies are being inflated and causing them to lose their purchasing power. We believe that over time consumers will see the purchasing power of their local currencies continue to drop at an increasing rate. It is our opinion that this will become more evident as prices generally rise more quickly than they have in the past.

This article is designed to get people to think about this very complex topic from a different perspective. The first step to dealing with the problem of rising prices is to understand the main cause. From an individual's perspective it would be a difficult battle to get our nations to change their monetary policies, but if your currency is becoming less valuable you may wish to protect your wealth through investment strategies. We believe it may be wise to consider investing in precious metals given the current inflationary environment. You may learn about our philosophies on investing and sign up for our free newsletter at www.investmentscore.com.

If you get an email forward suggesting a short term boycott of gas, you may wish to forward this article. Also, if you find this message helpful in understanding underlying factors affecting oil prices, please forward it to anyone you believe would be interested in reading it.

Michael Kilbach

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Copyright © 2006-2008 Michael Kilbach

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