Federal Reserve Chairman Thinks High Gas Prices Are Here To Stay
Federal Reserve Chairman Ben Bernanke told congress today that he expects the economy to stay sluggish, and was extremely pessimistic about the price of oil in the future. Despite the the airline industry's open letter to consumers claiming that speculators are driving up the price of oil and causing a commodities bubble, Bernanke doesn't agree.
From the NYT:
Mr. Bernanke was especially pessimistic about any easing of energy prices, dismissing suggestions that they were being driven by speculation in futures markets. Instead, he said high energy costs reflected the markets’ recognition that demand was outstripping supplies.
“Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,” Mr. Bernanke said. “On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.”
Before Mr. Bernanke’s remarks, the Labor Department reported that wholesale prices rose 1.8 percent in June, making for the fastest 12-month inflation rate in more than a quarter century.
Economy Will Stay Sluggish, Bernanke Tells Congress [NYT]
(AP Photo/Susan Walsh)
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Comments:
don't blame me. I voted for Gore.
high oil prices are because of the "GREEN" initiative. they need to make money now before they cant.
This is the first time I've found myself agreeing with him.
I still think a large part of the gas price problem are oil companies. We're paying 4$ a gallon or more, and they're making record profits? There's a disconnect there. And it really makes me angry.
No way. Americans will NEVER pay more than $1 a gallon.
And taxing us to death bringing it up to $1.25 or even $1.50 to fund public transit and other crazy go-nowhere schemes is just insane to ponder. You go, Wacky Bernake.
Ah, Benny, the ouroboros of circular logic will swallow you with it. You can't claim that the high market price is because of increasing demand and not speculation, using only the axiom that higher demand will increase market price.
Where are your numbers? What's your source, Ben Bernanke? Prove your statement so we can start fixing the problem your way, if you even have a way.
It's partly speculation and partly the fact that the US dollar, which oil is traded in, is worth nothing and falling further. So it takes more nothing to buy something.
I'm calling bullshit here. This guy is standing grudgingly in the way of real reform in speculative markets, including recent investment bank failures, in favor of big business. Even in today's Senate hearing, it's obvious that other officials are much more eager to step up to the plate for real reform against speculation than this clown is. I think his opening of the discount window for investment banks was a wise move, but, outside that, this guy needs to be sent to another country to screw up their markets instead.
In your face Hummer drivers! *sarcastically*
In USA fuel efficient cars weren't popular before. Now it seem like too late.
China and Indian use more and more fuel. So the solution, would be developing alternative energy supplies. Quickly.
Also, for those "it's supply/demand, dummy" types, remember that paper/speculative trading is, by definition, demand. Increased artificial demand and profit-taking pricing. You can't blame consumption alone.
The word depression escapes him.
.....so yes he may be correct, but can we please *not* have the Chairman of the Fed make statements like this in public that totally freak people (and the market) out! So in short, fix things, don't comment. Sort of like a plumber -- don't tell me how much "TP" plugged up the pipe, just fix the damned thing.
@Eldritch: There is no disconnect. Oil fields have fixed costs. It costs them about the same to pump a gallon of crude as it did 8 years ago and they are pumping about the same amount as they were years ago.
There is much more demand on the oil supply then there was 8 years ago. There is also a huge reduction in the ability of oil producing nations to increase capacity to meet demand with the Iraqi fields off line.
In addition the dollar is falling in value. This means profit is increasing in US dollars while the actual value, when you get for those dollars, is decreasing.
If inflation is %15 and corporate profits increase year to year %15 percent they made made more dollars but accrued no additional value.
Global competition, a reduction in supply and a falling dollar have all worked together to make record profits for oil companies.
The only way I can see prices getting significantly lower is to greatly reduce demand. Gas rationing anyone?
Back in the 70s oil crisis, waiting in line, rationing, higer than ever gas prices, then we started talking about fuel efficiency, smaller cars, alternative fuels.
Magically, they found lots of oil, and the age of the SUV/Monster truck was born. Suddenly, we are out of oil again. But are we? Honestly, I think this is the result of three things:
1. To measure what the real breaking point of the american public is with regard to what they will pay for gas.
2. To open up any and all potential drilling spots regardless of environmental implications (are we that desperate that we will let them drill anywhere just so we can have cheap gas?).
3. To cut off at the pass any exploration of alternative fuel and power sources before someone actually comes up with something that will make oil companies redundant.
@dweebster: Last time oil went crazy (late 70s), Louisville, Kentucky, got a mass transit system. You could go anywhere in the city and surrounding suburbs for four bits. Since Louisville is laid out in a kind of spiderweb pattern, it ran reasonably well.
If Louisville can do it, any sprawling American city can, and Louisville is the Ohio Valley's poster child for suburban sprawl.
@Ben Bernanke: Ya. It has nothing to do with you lowering the interest rate and making our dollar worthless you idiot. I guess we're going to play the blame game to distract the consumers of the truth: you screwed up.
if bushie had used the money wasted in iraq in developing alt energy sources, the states would be about 40% free of oil by this year. Huge solar / wind farms / solar stacks could have been constructed for power generation. This power would displace oil fired electrical generation. It would also provide a economical source of electricity for hydrogen generation.
Infrastructure for hydrogen would have also been paid for from the wasted money. Hydrogen cars would be displacing gas burners right now.
But bushie has instead destroyed a world super power and near bankrupted the government.
Not only does Bernake disagree, but so do nearly all economists.
When, oh when, will prices finally rise to that magical sweet spot where the drivers causing such traffic congestion on the streets of Los Angeles finally get off the road?
$4.89 per gallon definitely isn't that point :(
Magically, they found lots of oil, and the age of the SUV/Monster truck was born.
They didn't magically find oil in the '70's. That's important to point out, because this is a different kind of situation.
In 1973, OPEC stopped selling oil to countries that had supported Israel in the Yom Kipppur war. One of those countries was the US.
By late 1973 or early '74, the embargo was over. However high prices persisted due to other inflationary and dollar softening affects, until about 1986. However, the lines and rationing was over by 1974.
That was a much different situation then. OPEC had plenty of fuel to supply, and it was only their refusal that drove up prices (and their ending of the embargo that brought them back down).
Today, OPEC can tweak their production, increasing it by the small amounts that they've reduced in the past, but they just don't have enough capacity to meet global demand. More Chinese are joining the middle class, buying cars, eating mass-produced foods, and buying consumer goods.
The interesting side effect of this is that onshore oil fields in places like Texas that were mothballed decades ago because they were more expensive to operate than the relatively cheap oil that the Middle East delivered, are now being brought back online because at ~$150 a barrel, suddenly Texas oilfields are profitable again. There is a lot of untapped supply in the US and Canada, but there is a lot of price resistance too, i.e. you can refine Canadian shale profitably at $140 a barrel but not at $100 a barrel, so while we'll probably have enough oil to last us for a while, it won't be cheap.
The dollar policy hasn't helped, but I do think that demand is outstripping supply. No choice, but to get off oil.
I wish people would stop pretending that "renewable resources" are a viable alternative to our current or near future production of energy.
Solar= fail.
Wind power= fail.
We either start building Nuke plants or you can get used to these gas prices. Anyone, be it a politician or businessman or government official, who says we just need to build more/bigger solar/wind/thermal/fart farms is DANGEROUSLY UNINFORMED.
The use of natural gas and other fossil fuels to create electricity is a huge burden on the overall supply of fossil fuels.
@humphrmi:
Don't forget the North Sea oil platforms finally coming on-line in the early 80s. Made Reagan and Thatcher look like energy geniuses, and was England's economic savior. Those oil fields are a big part of what led to cheap oil in the 80s and 90s...
...unfortunately North Sea production peaked in 1999. So we're going to have to find another place on the globe to mess up.
When I read this I made a little poop in my pants. Just a wee little thing, I can feel it all squishy.
Can one of you economic/historian arm chair quarterbacks explain this for me? If demand is outstripping supply, then why don't my local gas stations run out of gas like they did in the 70's?
I'd like to add that I am with you on the nuclear thing. Why are we still burning nasty, dirty, coal that we have to dig out of the ground when nuclear is immensely cleaner and has a much smaller "carbon footprint". Pretty asinine if you ask me.
@wgrune: You can thank the NIMBY's. I assume that you have no problem with a nuclear plant or nuclear sludge in your backyard?
@Techguy1138: Annual inflation is about 2 or 3%, not 15%.
Not necessarily directed at you, but I'd love to see the numbers showing demand tripling in the last 8 years.
@wgrune: People who oppose nuclear power generally just aren't informed or they think 20 year old Russian technology (which was a good 30 years behind our tech) is the best we can do.
@wgrune: Because even WITH government subsidies that prop up wind/solar energy farms, they can barely eek out 2% of electricity production. Without subsidies, that graph wouldn't even LIST either solar or wind.
They simply cant match fossil fuels or nuclear power in terms of cost and efficiency per watt, not to mention that they unreliable to begin with.
@Tmoney02:
Nuclear Sludge? Come on. Many nuclear plants use river water for cooling and there is little to no environmental impact, if regulations are followed.
I live within 20 miles of a nuclear reactor and about the same distance from two coal plants. If I had to pick to live right next to one or the other it would be the nuke plant. I'll take steam over thick black smoke and the sound of freight trains dropping off ton after ton of coal any day.
@Tmoney02: I would rather have a nuke plant in my backyard than a coal fired plant 30 miles away. The Coal plant actually creates MORE nuclear waste than a modern nuke plant of the same capacity.
[www.sciam.com]
I really want to see some numbers showing demand increase versus supply increase. Why don't we see these numbers EVERY TIME somebody makes that argument? It should be really easy to prove!
Everyone in favor of nuclear of power should have to store their consumptions' proportion of the nuclear waste in their own home or on their property. It will only be toxic forever.
Four things the U.S. should do, right now:
1. Bring on the nukes. The newest U.S. reactors are still using 1970s technology. Can you imagine if all of our fossil fuel reactors and cars were stuck with technology that old? We'd still be choking on the pollution right now and bathing in lead. We need to be building nuclear plants and reprocessing spent fuel like there was no tomorrow.
2. Get some SERIOUS funding into nuclear fusion research. ITER is a good start, but we need something better than "30 years out" for this technology. It will be THE answer, if we can ever get it to work.
3. Create a national "manhattan project" to boost battery/ultracapacitor storage density about tenfold from where they stand right now. That's the only way fully electric vehicles are going to make real sense.
4. Get used to high fuel prices and the accompanying inflation. There is no magic bullet to fix this.
The fact is, regardless of what's driving the current spike, we HAVE to start looking for what's going to come after oil as a power source. Yeah, it's going to be expensive. Yeah, it won't be easy. Yeah, it will take a while. But the way things stand, we are relying way too much on an environmentally hazardous fuel that is largely produced by nations we cannot rely on as absolute allies. (And no wonder -- would you swear to always make nice to somebody you completely had by the balls?) Even if this were entirely the result of speculation, why is this whole country hostage to a system that is open to this kind of manipulation? "Let's punish the speculators" is short-term thinking for something that is definitely a long-term problem.
@wgrune: Well you bring up the good point about the river contanmition but that wasn't what I was refering to.
I was talking about the spent nuclear fuel and nuclear waste that even the most modern nuclear plant will produce and have to store. (Granted in smaller quantities) Considering how long they have been fighting over yucca mountain (the government began looking at it as a site since 1978) I wouldn't hold your breath for that storage facility to come online anytime soon and even then the waste will have to be trucked or railed to Nevada. So in the mean time it gets stored all over the country in essentially radioactive dumps.
you can see where the dumps here
[www.ocrwm.doe.gov]
@picardia:
Unfortunately, not going to happen. The current government is so in thrall to Big Business and the corporate interests that they are specifically promulgating policy so that business makes as much money as they can, as fast as they can.
Nobody in their right mind thinks that oil is an infinite resource. But it's not going to run out for a few decades, at which point all the CEOs and all these gov't criminals who empower them will be dead. So, the thinking goes, let's get every drop out NOW so we can spend it on trophy wives and Learjets.
This is why you have Bush managing to drag himself behind a podium to push for offshore drilling. Suck the planet dry!
@ohiomensch: but we are not out of oil. That is why it is going up in cost, rather than being rationed. You ration things when you can't get enough. We can get enough—it just costs more to do so.
I wholly agree with #2, sadly. It won't help us near as much as it will help the oil companies, but I don't see us collectively not going along. #3 I'm not so sure about. Even if we stopped using gasoline, we would be at the mercy of oil companies. What are the keys I'm tapping now made with? Yup.
@Bladefist: he helped. If we're going to play the blame game, every US company that has been moving its resources out of the US is also to blame. There's more, too. He may be no Greenspan, but the poor dollar we've seen in the last few years has been decades in the making.
@MaytagRepairman: demand didn't outstrip supply in the 70s. The US pissed off OPEC nations. While demand still hasn't come near outstripping supply today, it's good hyperbole. Demand is up, supply is up, but further increases in supply cost more per unit.
@Ein2015: Quick Googling came up with [www.eia.doe.gov]
I think the last people that want to see the oil prices fall is the government, they are bringing in large amounts of tax revenue because our tax system is based on a percentage of total income, and not a flat rate. They are able to tax oil atleast twice before we ever put it in our tanks and then they tack on a sales tax and then they tax
our personal income.
@Tmoney02:
That's a really interesting website showing the spent fuel dumps. I found that my state currently houses approximately 1500 metric tons of spent fuel since the 1970's. That sounds like quite a lot but when you think of it volumetrically it works out to about a 14 ft cube of spent fuel. I belt a coal plant burns that volume of coal every minute or so.
![[en.wikipedia.org]](http://en.wikipedia.org/wiki/Image:Sources_of_electricity_in_the_USA_2006.png){kind=link}
Mr. Bernanke obviously hasn't read The Secret. He needs to act as though oil prices were low, and honestly believe it, and they'll magically fall!