Interesting take. The dollar certainly has an effect on the price of oil but it isn’t the entire cause, imo. Freetoken makes valid points about demand and production. Demand is through the roof and production isn’t keeping up.
China and India are attempting to bring a billion people each, give or take, into the middle class. This creates tremendous pressure on supply. Note too, the Chinese currency is still pegged to the dollar. If the dollar were the sole culprit for higher oil, I have no doubt the Chinese would abandon it as their peg. Granted, that’s complicated but also action one would expect if the dollar were singularly responsible for higher oil.
Supply is effectively controlled by a few nations and OPEC. Most of those nations are less than friendly if not downright hostile to the US. They are also realizing, correctly I think, that they’re reaching their own limits on production while technology is advancing rapidly to make oil less and less important in coming decades. They may only have ten or twenty years to extract maximum profit from the world.
Supply is also constrained in the US Congress. We could and should drill ANWR and the continental shelf. We should be building nuke power plants and clean coal plants. We shouldn’t be converting food into fuel etc. In each of these cases, we’re doing the exact opposite of what’s in our self interest and effectively strangling ourselves in the process.
As to our fiscal problems, they certainly exist but are blown out of proportion. I don’t think we’re in any worse shape than most of the European nations when it comes to unfunded mandates. If the Euro deficits are smaller than ours, it’s primarily a result of Europe not spending on defense. The Euro is overvalued, much as the dollar was circa 1999-2000. And Europe is paying a price for an overvalued currency in the form of slow/no growth. This imbalance will correct.
When compared to the yen, the dollar was much weaker as recently as the mid-90′s. The Euro wasn’t in existence at that time but the mark and the franc were also pretty strong back then relative to the dollar.
To summarize, a weak dollar is responsible, but only partially, for the high price of energy. Supply-demand constraints are playing havoc as is the lack of any political courage to do the obvious and tap our own supplies.
