What's one way to lower U.S. gasoline prices? Cut the U.S. budget deficit. The two seemingly disparate conditions are, in fact, linked. A large deficit, such as the one the United States has been running for basically the past decade (and especially since the start of the financial crisis), weakens the dollar.
Further, because oil is priced in dollars, it tends to move in the opposite direction of the dollar, as institutional investors, oil producers, and speculators bid-up the price of a barrel of oil to protect the purchasing power of their dollar-denominated product (a certain percentage of oil's higher price is also due to the purchase of oil as an inflation-hedge play). In other words -- dollar down, oil price up! And investors -- certainly U.S. motorists -- know what happens to the price of gasoline when oil's price rises.
So one good way to get those gasoline prices down is to get that deficit down. True, the latter is easier said than done: in addition to health care reform to rein-in rampaging health care costs, balancing the budget will require tax increases and other spending cuts.
And there's another hurdle: cut the deficit too fast and too much demand will be withdrawn from the U.S. economy – not what one wants to see as the economy struggles toward recovery stage following a long recession.
But the above does not blot-out the undeniable: if you want a lower gasoline price, strengthen the dollar by eliminating the deficit and balance the federal government's budget, the way it was in 1998-2001.
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