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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.
Example:
Approximate
Increase In The Price Of Oil From 2001 to April 2008
US Dollars: Up 305%
Euros: Up, much less, 130%
Canadian Dollars: Up, much less, 170%
Australian Dollars: Up, much less, 135%
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.
By : Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach
is the President and Editor or www.investmentscore.com, an online publication designed to
show investors how to make profitable entry and exit trading decisions in
high growth potential investments. Investmentscore
uses a unique scoring system as a visual guide to assist investors in making
lower risk / higher reward trades.
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