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Bernanke's gas tax?

Federal Reserve Chairman Ben S. Bernanke is cranking up the printing presses. He has all but announced that, by this time next month, additional "quantitative easing" in the form of huge government bond purchases by the Fed will be underway. The goal is to stave off Japan-style deflation and rekindle job-creating growth. It may or may not work. One of the more interesting side-effects could be a further increase in gasoline prices for U.S. consumers.

Here's why: The more dollars Bernanke creates, the less purchasing power each one has. As the dollar weakens, the producers of crude oil -- the world market price of which is denominated in dollars -- will demand more of them in return for their commodity. Dollar-holding speculators, seeking higher yields, feed the upward spiral. Deutsche Bank economists estimate that each one percentage point decline in the trade-weighted value of the dollar translates into a $6 per barrel increase in the price of oil. And that, in turn, raises the price of retail gasoline by three cents a gallon. It's the equivalent of a $3 billion tax. That's $3 billion consumers don't have to spend on other stuff.

The risk, therefore, is that some of the economic growth the Fed creates by more quantitative easing could be short-circuited by a spike in gas prices. I certainly doubt President Obama is looking forward to dealing with a lot of angry motorists as the summer of 2011 rolls on, and the 2012 presidential campaign approaches.

On the bright side, though, higher gas prices will discourage driving, and the less people drive, the less CO2 and other emissions they produce. I guess you could say that Bernanke's money will be green in more ways than one.

By  | October 18, 2010; 1:19 PM ET
Categories:  Lane  
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"the less CO2 and other emissions they produce". Keep beating that dead horse.

Posted by: KWVeteran | October 19, 2010 6:50 AM | Report abuse

Are you insane? Save the economy by jacking up gas prices? Really? How very Carter-esque. The price per gallon of regular unleaded gasoline in my area is already running from $2.99 to $3.39. If I were to drive less, it would add an extra two or more hours to my 14 hour work and commutation day. Lovely. Way to take care of the middle class dudes.

Posted by: seabelly1 | October 19, 2010 8:19 AM | Report abuse

Sounds like a good idea to me. I see huge SUV (Gas guzzlers they) vehicles all the time. And how many households have a car or van for every one in that household that drives? And as soon as a child turns 16 and gets a driver license, mommy and daddy go out and buy them a car. Seems like no one wants to sacrifice and share one or two vehicles for the whole family. and people dont seem to cut back on the why not a gas tax? I am all for it....maybe folks will buy fuel efficient cars and limit cars in a household.

Posted by: sandohio | October 19, 2010 12:18 PM | Report abuse

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