Editor’s note: This op-ed is by Matt Cota, the executive director of the Vermont Fuel Dealers Association
More Vermont households than ever before will be receiving home heating assistance and food stamps this year. Unemployment remains high as companies across Vermont are forced to cut expenses to stay in business.
Yet during this economic downturn, something odd is happening in the commodities markets. Everything is going up— from wheat to sugar to crude oil. This increase is not due to a lack of supply. Heating oil and gasoline inventories are higher than their five-year average and demand is down.
So what’s going on?
Americans are paying more for essential commodities because of a “Fed Tax.” This is a phantom tax that Congress never passed and the president never signed, but is being imposed by the Federal Reserve.
The Fed recently announced that it will buy $600 billion in U.S. Treasury bonds. The economic theory behind the decision (also known as “quantitative easing”) goes like this: the Fed prints billions of dollars, injects them into the economy by purchasing bonds, which decreases the value of the U.S. dollar compared to other currencies. Agricultural and energy futures are traded on global exchanges in U.S. dollars.
So when the value of the dollar decreases, the price of everything that is sold in dollars increases. This devaluation makes U.S. exports more attractive, which is nice if you sell products overseas. But not if you have to eat, drive a car, or heat your home here in Vermont.
At the same time, regulations passed this summer to stop Wall Street traders from driving up the price of oil have yet to take effect. Washington insiders say it is practically impossible for regulators to meet its January deadline for setting new speculative limits in energy markets. As the cold weather sets in, heating fuel retailers and their customers are facing a double whammy — lack of oversight in the commodities market and a monetary policy that hurts all consumers.
While a devalued dollar can prevent deflation and spur exports, it also increases the price of everything else — including food and fuel. This Fed Tax— or quantitative easing, to use their words— is like simultaneously pressing on both the gas and brake pedals of the country’s economic engine. We are spinning our tires— it is counter-productive and needs to be stopped.
