On oil and the dollar, Bush and McCain acknowledge their own cluelessness
This post was originally published at the just-launched Think Progress Wonk Room, the new public policy rapid-response blog of the Center for American Progress Action Fund. Brad Johnson, the climate specialist for the Wonk Room, was a writer for Hill Heat.
Skyrocketing gas prices are crippling the budgets of Americans, as Bush has newly discovered. But he doesn’t have a solution. Nor does Sen. John McCain (R-AZ). Bush’s every response to energy problems is to drill for more oil and blame China. McCain has a more evolved position: his solution is to drill for more oil and build nuclear power plants, and blame China and terrorists. But neither will address a major culprit in the recent shocking spike in oil futures and gas prices — the collapse of the American dollar due to a vicious circle of shortsighted right-wing economic policies.
When asked if OPEC followed his call to increase production, how much oil prices would fall, Bush replied: “I’m just a simple president. But I really don’t know what it would do.” McCain was baffled when asked on 60 Minutes what he would do for the person facing rising gas prices: “I would love to tell you that I have an immediate answer for that. And I don’t.“
The popular explanation of increasing world demand and constrained oil supply is certainly behind much of oil’s long rise, exacerbated by the chaos in Iraq. But a myopic focus on oil prices doesn’t explain the whole picture.
Since 2000, the dollar has fallen 40% against the world’s currencies, Monday reaching “new lows against the euro and a basket of six major currencies.” Dr. A.F. Alhajji, an Ohio economics professor, outlined to CNBC the vicious circle that ties the dollar’s fall to oil’s rise:
The lower dollar reduces supply and increases demand, thus raising oil prices. As a result, the value of US oil imports increases, which in turn widens the trade deficit, which weakens the dollar further.
This cycle is worsened by the right-wing economic policies of this administration. Fed Chairman Alan Greenspan and Bush created the mortgage bubble by keeping interest rates at historic lows and failing to regulate questionable practices in the financial sector. As the curtain is pulled back, and the “securities” turn out to be junk, investors have been pulling money out of mortgage instruments and putting them into safe hedges like gold and, again, oil.
Now Ben Bernanke, Greenspan’s successor, is propping up failed hedge funds and financial institutions — despite not having regulatory oversight over them. And he’s cutting interest rates in desperation, which is, in the words of Hale Stewart of Bonddad Blog, “stoking energy inflation and encouraging the migration away from the dollar.”
Bush and Bernanke’s policies are creating inflationary pressure on the U.S. economy and making our financial markets riskier. This one-two punch drives the flight from the dollar into stable foreign economies and commodities like oil. Democratic attempts to fix the systemic problems and buffer American citizens from the whiplash on the job and at the pump are being stonewalled by Senate Republicans, Bush vetoes, and corruption in the executive branch.
John McCain, who happily admitted in December that “the issue of economics is not something I’ve understood as well as I should,” followed up with a troubling preview of how he would guide the American economy through these troubled waters:
“I’ve got Greenspan’s book.”