by John M. Curtis
(310) 204-8700

Copyright May 18, 2006
All Rights Reserved.

aking a sledgehammer to the economy, America's oil monopoly hit a raw nerve, fanning inflation and causing a worrisome leap in the Consumer Price Index. While the CPI omits food and energy, it was a just a matter of time before runaway fuel prices filtered into the overall economy. Just last week, Wall Street was celebrating what traders saw as positive news from Federal Reserve Chairman Ben S. Bernanke, that the Fed was nearing the end of its two-year-long interest rate tightening cycle. CNBC's Maria Bartiromo rained on the parade, getting Bernanke to admit that economic data will determine the Fed's next moves. When the Commerce Dept. announced April's CPI at 0.6%, or the core index of 0.3%, without food or energy, panic selling hit Wall Street expecting more rate hikes. Inflationary pressures have caused oil and precious metals to go through the roof.

      Small investors aren't on a level playing field with Wall Street's fund managers dumping or snatching up shares when economic data signal possible Fed action. When the Fed signaled it was nearing the end of its tightening cycle totaling 16 consecutive quarter-point rate hikes since June 2004, the Dow Jones Industrial Average leaped over 200 points. Since the negative CPI report, the market has shed over 600 points or about 5%. Bargain hunters will no doubt drive the market back up but the effect of runaway fuel prices threatens to upend the current bull market. Wall Street fears “the economy is going to overheat, inflation is going up, and the Fed can't pause,” said Al Kugel, a strategist at Stein Roe Investments in Chicago. Major refiners, like Exxon-Mobil, Conoco-Phillips and Chevron-Texaco, haven't stopped raising pump prices since hurricane Katrina decimated the Gulf last August.

      Instead of reining-in Big Oil, the White House has given a green light to gouge consumers. Federal investigations into price-gouging and market manipulation didn't stop Exxon-Mobil from paying former CEO Lee Raymond a whopping $400-million bonus while consumers, including transportation companies, go broke. Since hurricane Katrina, Exxon-Mobil—and other major oil companies—posted the biggest profits in U.S. corporate history. Shipping and transportation companies—including major airlines—have watched their margins evaporate because of high fuel costs. Passing on inflated fuel prices to corporate clients has fueled inflation across a wide band of industries, adding to the Commerce Department's recent CPI figures. President George W. Bush can't have it his way: Expecting tax cuts to erase the damage done by the greedy oil industry.

      Price-gouging and market manipulation by major oil companies now threatens the economy. Fed Chairman Bernanke hasn't yet blamed one industry for driving today's inflation. It doesn't take a rocket scientist to figure out that runaway fuel prices have driven up the current CPI, causing Greenspan's successor to walk a dangerous tightrope. Instead of hiking rates, Bernanke should be putting pressure on the oil industry to stop fleecing consumers and damaging the economy. Placing the oil industry under a microscope will cause executives to think twice before taking refineries off-line to drive up pump prices. World oil markets have less to do with pump prices than refiners worried about too much supply. More lecturing from the White House and Fed would remind the oil industry to act responsibly. Runaway fuel prices are already squeezing consumers and cooling off the real estate market.

      No economy can endure runaway inflation in energy markets. Stable energy prices assure viability of many industries, including the American family. Conservation and fuel efficiency can't stop market manipulation and unbridled greed. World events no doubt affect the price of oil. Today's inflated pump prices are more correlated with greed and market manipulation than world events. Maintaining artificially high fuel prices hurts the economy by fueling inflation and forcing the Fed to continue hiking interest rates. High interest rates, in turn, weaken the real estate market, responsible for infusing the economy with cash from home equity. “The boom is over. I think we can safely say that with a strong degree of confidence,” said former Fed Chairman Alan Greenspan, concerned that deflated real estate markets could hurt liquidity and eventually damage the consumer-dependent economy.

      Bush needs take seriously the oil industry's shameful greed and market manipulation. While there's nothing wrong with more tax cuts, they won't increase solvency and profit margins of airlines and transportation companies. Runaway fuel prices have caused the CPI to get out of hand, forcing Bernanke to keep hiking rates. High interest rates eventually spell doom for the stock market, which could cause a corporate liquidity crunch leading to layoffs and eventual recession. Oil companies should get their fair share but they shouldn't have a license to cause inflation and tank the economy. By lecturing the oil industry to act responsibly, Bush and Bernanke could help contain the ugly elements of free enterprise, where unchecked self-interest hurts the public good. Before the oil industry takes down the country, it's time to speak up and show some courage.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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