Why Food and Energy Prices Are Rising – The “Fed” Tax – From November 9, 2010

The Fed Tax

 The Tax Congress Never Passed and the President Never Signed – And That Continues to Rise

The prices of wheat, corn and soybeans have increased in price more than 90% over the past year. Every American who shops for groceries each week sees food prices rising. While every American is being punished with higher food prices, these dramatic increases are being levied the hardest on the poor. The number of Americans receiving food stamps is now over 42 million, or 14 percent of the population, an increase of 58.5% since August, 2007.

Energy prices have seen similar shocks to the family pocketbook. Heating oil inventories are at a 27 year high, the weather reflects that between this year and last year we should have a decline in heating energy demand – yet heating costs are rising. Gasoline inventories are higher than their five-year average. Demand for gasoline by consumers is down 2.7% between October, 2009 and October, 2010.  Energy inventories are up, consumer demand is down – yet we’ve all seen gas prices increasing at the pump almost daily.

All of us see food and energy prices rising – in apparent defiance of anything to do with the normal fundamentals of supply and demand. Why?

Americans are paying more for essential commodities due to a “phantom tax” that Congress never passed and the President never signed. These increased costs from the phantom tax are courtesy of the Federal Reserve which has pumped out trillions of dollars in an attempt to reinflate the nation’s economy. As more dollars flow out of the Fed and into the money supply, the less each dollar is worth; and as the Fed continues to drive down the value of the US dollar, everything that is sold in dollars continues to rise in price.

Since the beginning of the financial crisis in the fall of 2007, conservatively it is estimated that the Federal Reserve has either printed dollars for the money supply or held commitments in dollars backing federal bailouts that amount to in excess of $12 trillion.  This week the Fed announced it was going to further attempt to spur growth by pumping $600 billion into the economy through purchases of Treasury bonds.  Fed leaders figure the $600 billion bond-buying program will provide a modest boost to the economy over the next year, but they acknowledge that the jobless rate, now at 9.6 percent with nearly 15 million unemployed, will stay high. And it could even rise in the next few months.

It is the Fed’s second experiment with buying bonds on the open market. From December 2008 to this past March, it bought $1.7 trillion in Treasuries and mortgage-backed securities. But since then, the recovery has faltered.

Our federal government has conceived of a way to avoid borrowing money in order to finance federal budget deficits by simply having the Fed buy Treasuries and continue to print money to cover the transactions. This further erodes the value of the dollar and the world’s confidence in the US dollar as the world’s reserve currency.

The Fed may well be concerned about deflation, but for every consumer this argument means nothing when their food and energy bills are skyrocketing due to the Fed’s policy of ruining the value of the dollar.

Let’s be clear. What the Federal Reserve is doing is a federal “stimulus” by another name and the consequences of this effort is now hurting every American. Pumping increasingly worthless US dollars into the banking system so that banks have more money to lend does not spur consumer confidence. In fact, given that American’s are finding it increasingly difficult to afford food and energy, their confidence in the economy is not increasing.

Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, calls it “a pact with the devil.” He was the only dissenter in the Fed policy committee’s 10-1 vote for the Fed effort, also known as “quantitative easing.”

The Fed “stimulus” is doing nothing more than destroying the US dollar, causing every American family to pay higher food and energy bills, seeing the value of their savings erode, while further eroding confidence in currency and the economy. This is a counter-productive financial and economic shell game … and it needs to be stopped, now!

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The Price of Gasoline

CONNECTICUT GAS TAX HIKE COSTS DRIVERS AN ADDITIONAL $205,000 PER DAY

The average retail price of regular gasoline hit $4.00 per gallon in Connecticut today. Connecticut joins several other states [Alaska, California, D.C., Hawaii and Illinois] in the nation to have reached this level.

The Connecticut Petroleum Gross Receipts Tax, one of the two state taxes Connecticut applies to gasoline, is now at 24.25c per gallon and is the highest amount of GRT since 2008. In context, based on the average wholesale price of gasoline on February 1st, the CT GRT was raising 19.20c per gallon. The wholesale price increase in gasoline since February 1st, from $2.55 up to today’s wholesale price of $3.22 – has resulted in Connecticut drivers paying an automatic, additional 5c per gallon in Connecticut Petroleum Gross Receipts Tax.

As of today, the total state taxes Connecticut imposes on gasoline costs motorists 49.25c per gallon. The federal excise tax adds another 18.4c per gallon, for a total state and federal tax burden on gasoline of 67.65c per gallon in Connecticut, among the highest in the nation and the absolute highest in the Northeast.

Each 1c a gallon increase costs Connecticut drivers $41,000 per day. This means that the 5c per gallon increase just due to the Connecticut Petroleum Gross Receipts Tax is adding another $205,000 per day in additional costs to buy regular gasoline.

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Earth Day 2011

ICPA wrote and succeeded in getting passed into law the first Fuel Oil Conservation Fund in America in 2009. With an initial funding of $15,000,000, the objective of the Fund was to upgrade old, inefficient heating systems among the poorest of our citizens who qualified for low income energy assistance.

A succession of budget cuts from the state saw the withdrawal of $13.5 million of the $15 million, leaving the Fund with $1.5 million on which to operate in 2009/10. In serving more than 400 low income residents, for every $1 the fund spent improving the energy efficiency of heating systems we saw $3 in energy savings. This cuts the need for the amount of taxpayer-funded LIHEAP benefits through lower energy consumption.

The 2011 budget for Connecticut provides “0” funding for this program. This is not the Earth Day contribution to energy savings and improving energy conservation we wanted but we continue to fight in Hartford to fund programs that cut energy use through improving energy conservation.

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Hello world!

Welcome to ICPA’s Blog.

Our association represents hundreds of local energy marketers in Connecticut who employ more than 13,000 of our state’s citizens. ICPA is a leader in energy innovation and energy conservation work in our state and in Washington, D.C.

We welcome thoughtful discussion about energy issues and encourage people to politely share their views and exchange information with each other here. We will post our views on major energy issues here and further encourage public discussion and debate.

cheers!

Eugene A. Guilford, Jr., President

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