Don't Blame The Messenger, Day Two

Today Fed Chairman Ben Bernanke spoke and answered questions before the Senate Banking Committee. The Senators, as a whole, realize that the Chairman is not Superman. Many of the Senators know the score with regards to our economy, the global economy, OPEC, other commodity prices like food and ethanol, and most importantly, the limitations of the Federal Reserve Bank. The complexity of their questions indicate this.

I would like to put forth an analogy that I hope with help drive my point about the importance of driving down or at the very least an attempt to drive down the price of oil. The bees pollinate the flowers and from that cross pollination comes fruit. People spending their money at the local level on food, clothing, shelter and gas, works its way through the economy and has a similar effect that the cross pollination of the bees have on the production of fruit. Money changes hands and money is spent and the process continues. The economists have a fancy word for this, they call it the velocity of money. Unfortunately, when we all are paying over $3 a gallon at the pump, money is leaving the system.

We need to be pro-active with regards to the rising price of oil. We can not assume that the price of oil will stabilize over the coming months. The United States must take steps to confront and deal with the rising cost of oil, regardless of what may or may not happen for the demand for oil around the world. The psychological benefits of a decline in the price of oil and gas to the domestic economy, in my opinion, can not be over stated. Yes, I know about the housing crisis, the sub-prime loan mess, the rating agencies mess, and every other economic or financial mess that is out there. But, if our government wants to send a message to every single person that pumps his or her own gas at the gas station every week, that something is being done about inflation, then let that message be reflected in the price of gas that is so prominently displayed on the big sign next to every gas station. Don’t under estimate the psychological effect across the entire nation, in every city, town and village, when the price of a gallon of gas at the pump goes down a dollar. That, my fellow Americans, would put confidence back into the consumer and a few more buck$ back into his pocket. That coupled with the check we are to receive, will get our domestic economy moving, perhaps slowly at first, but back in a positive direction.

Action should be taken to encourage the production of oil, gas and diesel here in the United States. Congress and the President need to concern themselves with our energy policy now. It can not be heavy handed, for we don’t want to discourage foreign investment in the U.S., but measures need to be taken. We are being squeezed by OPEC. That coupled with the demand for oil on a global basis has resulted in the $100 a barrel price that we are paying today.

Economic activity is driven as much by what is in a person’s mind as by what is in his wallet. Markets, like people, (which is what they are made of) operate not in a vacuum, but in real time. The confidence, the psychology, of the consumer drives the markets and the domestic economy. Lowering the price of gas at the pump will improve the confidence of the consumer across the entire country. Stay tuned.