With the current political arguing about the debt ceiling and forecasts of disaster, national credit downgrading and default, we’re all wondering how this potential event could impact ourselves and our family’s bottom line.
Explanations by economists about interest rates and T-bills can make anyone’s eyes glaze over. Here’s an important fact that you need to know about a cost that resonates with all of us – gas prices.
The world is watching what the USA does with its economic policy and how our politicians do or do not solve critical problems like this. With Congress seemingly unable to get things done, foreign financial markets become uneasy about the US economy, and that causes the value of the US dollar to drop. This isn’t just a future worry – it’s already been happening, as the value of the dollar has dropped steadily over the last five months compared to the value of the Euro and other currencies.
So what’s the big deal? The value of the dollar turns out to have a major impact on oil prices and gas prices that follow from those. Buyers who purchase oil for refineries in the US have to bid on the oil shipments against buyers from other countries who have a high demand of oil themselves, like China and India. When the US dollar is weak, American buyers have to bid more dollars to offer the same value for the oil as someone with a stronger currency. A buyer from China or India may be able to offer the same value using less of their stronger currency. And that’s something which causes oil and gas prices to go up.
If the situation doesn't get resolved and our currency continues to drop, we may see gas prices go up over $4.00 a gallon during the time of the year when they normally drop.
Let us hope our politicians do the right thing (whatever you believe that to be) and get our economical situation back to where it should be. Your gas budget may depend on it.
This post was published on July 29, 2011 and was updated on November 19, 2013.