Opinion – Michael J. Fox, Executive Director GASDA, Inc.

The Dodd-Frank speculation legislation passed the House last year without a single Republican vote. Now, Republicans control the House.  We the people need to send a better message for the members of the House. A much larger message than just protect the appropriation’s for the CFTC’s enforcement of a law they unanimously opposed.  Here are three key points and this is just a minimum we the people should stand for:

1. National Energy Policy regarding home based Crude Oil

Crude oil now above $90 per barrel on world exchanges, we have no further to look than the decision, no matter who made it Republican or Democrats, to retain the ban on deep water drilling offshore in the United States until 2017.  This should not be a political issue with name blaming, but more a US we the people issue to send the signal that decision by Interior Secretary Salazar sent to world energy markets is that the United States does not intend to help itself out of the imbalance of roughly 65% imported crude oil for the next seven years. Taking this amount of producible domestic crude out of production has worsened the current balance between roughly 85 million barrels per day of world production and 83 million barrels per day of world consumption. Tightness of world crude supply and demand plays a crucial role in driving world crude markets higher and thus far OPEC has been unwilling to make up for what the U.S. has decided to take off the market. All members of Congress who claim to represent “we the people” needs to expedite oversight of deep water drilling projects, overhaul the Department of the Interior’s Mineral Management Service, and get the United States back into deep water production of domestic crude oil in an environmentally safe way. Both sides of the isle have blame here and our Government watchdog/regulations have plenty to be blamed for as well and that just feeds the political arguments and “we the people” get screwed!  If we the people want lower energy/fuel prices, let the United States produce more crude oil.  We can, We should, and “we the people” need to make sure our government on both sides of the political isle hear us load and clear.  We will remove whatever party does the “wrong” thing for our county, i.e. “we the people”!

2. National Monetary Policy – The Fed Tax

It is impossible for any rational economist to ignore the role a dramatically weakened U.S. dollar currency has on energy prices.  Crude oil has increased by more than 30% since this summer, as everyone who shops for food already knows, food prices are up dramatically based on the prices of wheat, corn and soybeans having increased in price more than 90% over the past year. Energy prices have seen similar shocks to the family pocketbook. Heating oil inventories are at a 27 year high, the weather reflects that between this year and last year we should have a decline in heating energy demand – yet heating costs are rising. Gasoline inventories are higher than their five-year average. Demand for gasoline by consumers is down 2.7% between October 2009 and October 2010.  Energy inventories are up, consumer demand is down – yet we’ve all seen gas prices increasing at the pump almost daily.

All of these increases are in apparent defiance of anything to do with the normal fundamentals of supply and demand. Americans are paying more for essential commodities due to a “phantom tax” that Congress never passed and the President never signed. These increased costs from the phantom tax are courtesy of the Federal Reserve which has pumped out trillions of dollars in an attempt to re-inflate the nation’s economy.  As more dollars flow out and into the money supply, the less each dollar is worth; and as the Fed continues to drive down the value of the US dollar, everything that is sold in dollars continues to rise in price.

Specifically, every penny at the gas pump is a $4 million per penny per day, or a $1.46 billion a year tax.  The 41-cent increase in wholesale gasoline prices just between July and December 2010 is equivalent to $164 million a day tax increase – or $60 billion per year.  For distillates, the increase of 46 cents a gallon since June is equal to a tax increase of more than $70 million a day or $25.5 billion.  The two together have given us a tax increase of more than $85 billion (annualized) since June and no one voted on it, and it has added nothing to the government’s budget.  And then there’s copper, lumber, cotton, silver, and food. Coupled with the wrong signals sent by our Federal Government concerning domestic energy production, Fed monetary policy also acts as a firm driver of higher energy costs through maintaining a weak U.S. dollar.

3. Is a Flight to commodities the New Magnet of Safe Haven

If you have a Federal Government signaling it is taking millions of barrels of domestic production out of world supply and then have a Federal Reserve debasing the world’s reserve currency that is the keystone of world energy prices, you have the perfect coupling of two drivers of investment in commodities whose prices should rise and thus create a safe haven for investment to defeat the devalued dollar. This is now evidencing itself in everything from gold prices to wheat prices to crude oil prices to copper prices. Not real supply and demand factors. 

Position limits are one of the more controversial initiatives required by the Dodd-Frank financial reforms passed last July. Lawmakers directed the CFTC to pass rules limiting certain commodities traders’ size in energy, metals and agricultural commodities traded on and off exchanges, such as the NYMEX, where energy and agricultural commodities are traded daily.  In effect, position limits may have the effect of preventing investors from flooding cash into commodities and inflating their prices as some believe.

The CFTC aired a draft position limit proposal a few weeks ago that would have set speculative limits at 25 per cent of deliverable supply for spot commodity contracts. Staff at the CFTC estimated that at most 70 traders in agricultural commodities, six in base metals, eight in precious metals and 40 in energy contracts would be affected by the new spot-month limits. The internal debate within the CFTC and the battle that will be waged in Congress over this issue puts the CFTC’s budget within the crosshairs of Congressional appropriators looking to weaken the CFTC’s ability to not only enforce the authority it has held since the 1930’s, but also the specific new authorities in this area granted it by the Dodd-Frank legislation passed last spring. 

Will position limits regulated by the federal government have any effect on energy prices by restraining investors’ ability to buy into the market versus those commercial entities who are in the commodities market with the intention of actually taking delivery of fuel?  We have yet to see, but we have seen what no limits are doing to the market right now!

Our Federal Government has sent all the wrong signals in the evolution of national energy policy and those negative signals are directly resulting in higher energy costs and are directly threatening the weak and floundering economic “recovery,” where the real effective unemployment rate is 17%, where 1 in 7 Americans lives below the poverty level, and where now the number of Americans receiving food stamps is now over 42 million, or 14 percent of the population, an increase of 58.5% since August, 2007.

This is what awaits a new Congress that was sworn in this week and what they said they are going to fix.  It is “we the peoples” job to make sure they do what they said they were going to do.  “We the people” need to learn from past mistakes that Election Day is just that, a day.  Now, “we the people” need to be watching and demanding results or it will be the same old results!  This election was your fault, no it was yours in the last election, and we need to wait for the next election to fix it! Well, “we the people” are to blame if we do not MAKE SURE you do your job, no matter what party is in power or what party the President of the United States (“we the people”) belongs to!