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.
| October 18, 2010; 1:19 PM ET
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