We’ve heard how the value of the dollar affects gas prices – and indeed the price of everything.  I was pleased that my request for a hearing on such was granted by the Financial Services committee and we were able to hear some very informative testimony.  Certainly domestic policies, regarding off-shore oil drilling bans, ethanol mandates, refining capacity, and CAFE standards are interventionist and harmful enough in the energy market.

But how does foreign policy affect gas prices?  One important factor is that oil on the world market has been priced in dollars exclusively since 1973.  Only two leaders have gone against this arrangement – Saddam Hussein in 2000 and more recently Mahmoud Ahmadinejad with the recently opened Iranian Oil Bourse which trades in non-dollar currencies. 

But since oil is otherwise exclusively traded in dollars, this means that oil producers have vast amounts of assets held in dollars.  Especially since the War on Terror and the PATRIOT Act, many oil-producing nations and banks are concerned the US government may freeze assets based on flimsy pretexts.  This fear contributes to dollar weakness, and therefore also high oil prices.

Recently I and other members of Congress spoke out against H Con Res 362 and exposed this seemingly innocuous bill for what it really is – a call for a blockade and a build up to war with Iran.  Thankfully it has not come to the floor for a vote as I had fully expected it would.

But to even propose legislation like this, and get an alarming 261 cosponsors, makes the oil markets jittery and encourages more capital flight from the dollar.  We only isolate ourselves on the world stage with actions and attitudes like this.

After all, how can it be wise for the rest of the world to bank on America, when we tend to freeze assets and blockade entire countries for no good reason?

Another major factor is our intervention in international military conflicts.  These conflicts are often much more complicated, and have more to do with oil than our own leaders are willing to acknowledge.  Too often the side we support points our weapons right back at us down the road.

The best policy is always free trade with all and entangling alliances with none, but instead we isolate ourselves by picking sides and making enemies out of our friends or potential friends.  In the recent conflict with Russia and Georgia, it appears that once again the administration is going to pick sides and send taxpayer money, when we are in a deep recession here at home.

There is no good reason for us to put a dog in every fight around the world.

The contributing factors in the price of oil are complicated and legion.  The fact is, it is an immensely valuable resource, and, as our demand for this resource is great, our relationships with world leaders who control it should be handled with reason and intelligence.

However, our interventionist mindset when it comes to foreign policy never ceases to get us into sticky situations, for which we pay a premium at the gas pump.

Ron Paul is a republican member of Congress from Texas.

Oil prices are on the minds of many Americans as gas hits $4 a gallon, and continues to surge.  How high can prices go?  How can we solve these problems?  What, or who, is to blame?

Part of the answer lies in understanding bubbles and monetary inflation, but especially the Federal Reserve System.  The Federal Reserve is charged with controlling inflation through interest rate manipulation, however, many fail to realize that creating money, and therefore inflation, is really its only tool.  When the Federal Reserve inflates the dollar as drastically as it has in the past few decades, the first users of the newly created money go in search of investments for their dollars.  They must invest this money quickly and aggressively before it loses value. 

This causes certain sectors to expand beyond what would naturally occur in the free market.  Eventually the sector overheats and the bubble bursts.  Overinvestment in dotcoms eventually led to a collapse of the NASDAQ.  Next we had the housing bubble, and now we are seeing the price of oil being bid up in the creation of another new bubble.  Investors are now looking to commodities like oil, for stability and growth as they pull capital out of real estate.  This increased demand for investment vehicles related to oil contributes to driving up the price of the actual product.

If the Fed continues with its bubble blowing policies of the past, the new commodities bubble will continue to grow, gas prices will continue to go up, as the value of your dollars go down.  We will see an overinvestment in these commodities as solutions are desperately sought for a supply shortage, which is only part of the problem.

Make no mistake, though, this is not the free market at work.  Government manipulations have added levels of complication and unintended consequences to the marketplace.

This is not the time for members of Congress to take political potshots at each other, or to imagine that the free market is somehow to blame.  This is the time to understand and fix problems.  That begins with making sure the decision makers have a firm grasp on the causes of the problems and possible effects of their decisions.  This is absolutely crucial if we want to get it right this time.  That is why I am in the process of calling for hearings on Capitol Hill on how the falling value of the dollar affects energy prices.

Governments need to get out of the way and let the people get back to work so that we can get our economy back on stable footing.  Our destructive regulatory environment, confiscatory tax policies, and managed, rather than free trade have chased many businesses overseas.

The bottom line is average Americans are being seriously hurt by these flawed policies, and they are not getting good information about the true dynamics at work.  The important thing now is to get the diagnosis absolutely correct so we can administer the appropriate treatment and move on to a healthier economic future. To do this it is absolutely necessary to address the subjects of central banking and fiat money.