Gas Prices Explained Transcript

hey, what’s going on with gasoline prices

gas prices are now the highest they have ever been in the winter

is it the gas stations fault?

no. gas stations control the price of gasoline as much as supermarkets control the price of cereal. If the price of cereal suddenly went up a lot everywhere, would you blame your local supermarket?

no, if its happening everywhere it can’t be one supermarkets fault.

the same goes for gasoline. most of the price of gasoline is based on the price of oil, which gas stations don’t control. Gas stations don’t make much on selling gas anyway, they make most of their money selling snacks and other items.

so they aren’t profiting from the recent jump in prices?

no. usually spikes in gas prices hurt gas stations because they can’t raise prices fast enough

so are gas prices up because there is not enough supply?

no. supply is so high that american refiners have started exporting gasoline to other countries.

why would they want to export their gasoline and not sell it here?

refiners sell their products wherever the customers are. If there was large demand at home, they would sell their gasoline here, but domestic demand for gasoline is at a decade low.

why is demand so low?

demand is low for many reasons. cars are becoming more efficient, and more people are working from home, and the economy is still not very strong.

but if there is low demand, and plenty of supply, shouldn’t prices be falling?

all else being equal yes, but there is a third factor

is it the recent instability in the mid east?

has there ever not been instability in the mid east?

I guess not

gas prices are higher now than even a year ago, when that entire region was experiencing popular uprisings and governments were falling.

what else is left? is it the speculators? I heard some politicians blame high gas prices on speculators.

speculators are a politicians favorite scapegoat

what do you mean?

speculators can bet both ways. If gas prices were falling, do you think the politicians would be blaming speculators?

no. if prices were falling the politicians would probably be taking credit.

right, even though speculators can just as easily bet on something going down. do you remember how at the start of the financial crisis politicians were blaming speculators for driving down bank stocks?

yes. they even made it illegal to bet against bank stocks.

but bank stocks collapsed anyway.

of course they did. the banks had too many toxic mortgages.

so the speculators betting on that made money, while the speculators that owned bank stocks lost. In the long run, markets will go to equilibrium regardless of what speculators do.

so what is making gas prices go up in America?

the falling dollar

really?

yes. the price of anything is based as much on what its worth as it is on the currency you are using to pay for it.

so as the value of the dollar goes down, we need more and more of it to buy a gallon of gasoline

exactly. that’s why in america the price of gasoline has been rising despite high supply and low demand.

is the situation different in other countries?

Yes. In a country like Australia gas prices have not gone up as much, because their currency has been gaining value against ours.

why is the u.s. dollar falling in value?

because the bernank keeps printing more and more to stimulate the economy

but don’t higher gas prices hurt the economy?

absolutely. the last 2 times gas prices approached 4 dollars a gallon in america the economy slowed drastically

so what does the bernank say about his driving up gas prices?

he says his policies have nothing to do with rising gas prices

but doesn’t he keep taking credit for rising stock prices?

yes. the bernank has said on many occasions that one of the direct benefits of his actions is higher stock prices.

so does he think the two are not related at all?

apparently not.

is he lying

completely

can you prove it?

easily

how?

by looking at a chart of gas prices compared to stock prices, like this one.

can you tell which line is stocks and which one is gasoline?

no, they look identical

exactly. the white line is stocks and the blue line is gasoline

they have consistently moved up and down together.

indeed. this chart makes thing so simple even an economist can understand what’s going on.

and yet the bernank claims credit for the white line, but says he has nothing to do with the blue

right. its like admiting you drank too much, then saying the hangover is not your fault.

how does the bernank hope to get away with that?

he has a lot of help from misguided reporters and shady politicians.

doesn’t this all mean that whatever the Fed does to stimulate the economy will also hurt it elsewhere?

exactly. as the old saying goes, there is no such thing as a free lunch.

maybe one of these days the fed will realize that

from your mouth to the bernanks ears.

 
 

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