Friday, May 23, 2008

Oil and the Dollar

The rise in the price of oil has a lot to do with the fall in the value of the dollar:

Certainly energy prices have risen, regardless of what currency you use. In Europe, the price of oil has risen by 50 euros in the past five-and-a-half years. It now stands at about 75 euros per barrel, three times what it was then. But in the U.S., the price of oil has risen to over $120 per barrel, and is now almost five times what it was then.

The sole reason for this enormous difference is the incredible depreciation of the dollar against the euro. From one for one at the end of 2002, it now costs nearly $1.60 to buy a euro.

This seems very obvious to me, but based on the recent Congressional hearings, it isn't very obvious to politicians. I guess I shouldn't be surprised.

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