Gassy

AP: What makes up the price of gas?

The biggest factor...is the historic ascent of crude oil, which has surged...to more than $135 this past week...

The rest is a complex mix of factors, from the cost of turning oil into gas to taxes to marketing costs to, sometimes, nothing more than the competitive whims of your local gas station owner.

Blame the falling dollar. Oil is priced in U.S. dollars, and the weaker the dollar gets, the more attractive dollar-denominated oil contracts are to foreign investors—or any investor looking for a safe haven in the turbulent stock market.

You might ask, why is the dollar so weak. This NYT article pins the blame on Bush.

NYT: A Weak Dollar and the Fed

The answer is rooted in the Bush administration’s misguided economic policies.

Over the last several years, America’s imbalances in trade and other global transactions have worsened dramatically, requiring the United States to borrow billions of dollars a day from abroad just to balance its books.

The only lasting way to fix the imbalances — and reduce that borrowing — is to increase America’s savings. But the administration has steadfastly rejected that responsible approach since it would require rolling back excessive tax cuts and engaging in government-led health care reform to rein in looming crushing costs — both, anathema to President Bush. It would also require revamping the nation’s tax incentives so that they create new savings by typical families, instead of new shelters for the existing wealth of affluent families — another nonstarter for this White House.

Stymied by what it won’t do, the administration has gone for a quicker fix — letting the dollar slide. A weaker dollar helps to ease the nation’s imbalances by making American exports more affordable, thus narrowing the trade deficit.

But to be truly effective, a weaker dollar must be paired with higher domestic savings. Otherwise, the need to borrow from abroad remains large, even as a weakening currency makes dollar-based debt less attractive. That’s the trap the nation is slipping into today.