The political season is in full swing and both presidential candidates are talking gas prices. McCain wants to have a reality show type of contest to come up with a battery powered car and Obama wants to fix our energy problems by taxing oil companies (surprise). Both ideas are cockamamie.
I was reading an article in Barron’s that made me thing it’s time for the president, the current president, to act.
President Bush has been much maligned during his eight years and history will judge him based on the ultimate outcome in Iraq. Right now it’s hard to tell what that will be, but it’s not necessarily the disaster that some folks think it is (or wish it to be). But president Bush still controls the reins for seven months and Americans would like to know that he understands what we’re facing and that there are things that can be done about it. Not only that, although he’s been weakened he can still shape the debate and put the ball in congress’ court. That way if they don’t act, it will be their fault. Right now, nobody is holding their feet to the fire. It’s time for Bush to go over their heads to the American people.
Time to address the nation
1. The strategic petroleum reserve currently contains 705 million barrels of crude oil according to Barron’s. That’s enough petroleum to run the entire U.S. for 35 days. President Bush could announce the sale of crude from the SPR in 100 million barrel increments. This would serve two objectives, it would add supply to the current supply/demand equation thereby dropping the price of oil and the threat of more being dumped on the market may scare away some speculators, that are bidding up the price, out of the market (at least in the short term).
2. Institutional investors such as endowments and pension funds are using commodity-indexing strategies to invest in oil at unprecedented levels and also bidding up the price per barrel. The president can introduce a bill in congress that would close a current loophole that, “lets indexers evade commodity-position limits by purchasing over the counter swaps and other derivatives.”
3. Put pressure on legislators to remove restrictions on drilling in the straits of Florida and in the Arctic National Wildlife Refuge in Alaska. Governor Palin of Alaska says the footprint of such an operation would be smaller than that of L.A.X. Remember we’re talking about a state more than twice the size of Texas.
4. Push for removal of all energy subsidies including the one for corn ethanol. By now everyone knows corn ethanol is a waste of time and money and drives up the cost of food. The only way we’re going to know which alternative energy sources are viable is to have them compete with oil without any help or handicaps. It’s called having a free market.
By the way, the other way to bring the price of oil down is to strengthen the dollar which is very weak right now. That will mean raising of interest rates. And that’s a double-edged sword because of the number of variable rate loans that are pegged to the prime rate. The reason the rates were lowered were to provide relief to those facing foreclosure. But rates will have to go up and they’ll have to go up soon to combat inflation.