By Chris | October 19, 2007
Clara Jeffery, editor-in-chief at MotherJones, thinks so. In a post that received over 1300 diggs she notes:
“Thus, of the $59 increase in the cost of a barrel of oil to a U.S. consumer, more than $30 is due to the depreciation of the U.S. Dollar and the fiscal and trade policies that have contributed to it. Not Middle East tensions, not China’s increased appetite, etc. “
I agree that a falling dollar is going to make crude oil more expensive for U.S. consumers. Even though oil prices are denominated in dollars, OPEC is a cartel that maximizes profit by setting a uniform price. As the dollar falls relative to most other world currencies, world demand for oil will increase and OPEC’s profit maximizing price will rise.
Where Ms. Jeffery goes wrong is when she claims that, “…a big portion of it [high gas prices] can be attributed to a growing [budget] deficit.” This is contrary to basic exchange rate economics. A growing budget deficit puts upward pressure on interest rates which should make the dollar rise.
It’s just hypocritical to be hysterical about our unsustainable trade deficit and then blame the Bush administration when exchange rates adjust. Gas prices have been rising for a number of reasons, but a growing budget deficit isn’t one of them.