Facts are under assault in 2020.
We can't fight back misinformation about the election and COVID-19 without you. Support trusted, factual information with a tax deductible contribution to PolitiFact
I would like to contribute
In late March 2012, gas prices in the Milwaukee area hit a record high, $4.20 a gallon, according to AAA Wisconsin.
While prices have come down, to about $3.83 a gallon, that milestone ignited a new round in the political blame game. We’ve heard some of these claims many times -- there’s not enough oil drilling, we’re too dependent on foreign oil, Obama is standing in the way of the Keystone XL pipeline from Canada. (PolitiFact’s National site has an entire section devoted to the topic.)
In Wisconsin, a radio ad from Republican U.S. Senate candidate Eric Hovde tapped into the frustration that many motorists feel when they fill their tanks.
In the ad, Hovde says Obama and Congress are spending wildly, and "this causes the Federal Reserve to crank up the presses printing more and more money."
"So the United States dollar is being devalued resulting in the prices for our basic necessities like food and oil to rise," Hovde says. "These failed economic policies are making gas prices higher while America’s economy is running on fumes."
He elaborated in an April 24, 2012 appearance at the Milwaukee Press Club.
"What printing money does is it debases the currency and devalues the dollar," Hovde said. "That is why oil prices are $100 a barrel, and why gas prices are over $4. … If we don’t stop the Fed from quantitative easing, you could be looking at, within a matter of years, I’m talking about six or eight or 10 dollars for a gallon of gas."
Wow. Those are startling numbers.
"You can track this," Hovde said when asked for backup to his claim. "It’s written extensively about. I’m not the only out there talking about this."
For a deeper look at the first-time candidate’s claims, we dialed up some experts on oil and gasoline prices.
John Felmy, chief economist, American Petroleum Institute, a key oil industry trade group: Felmy said gasoline prices very closely follow the price of oil. There’s been a record level of demand for oil worldwide and some supply constraints, in part because Libya is currently not exporting oil.
"It’s a tight market, and there’s not a lot of excess capacity," Felmy said, adding that gasoline prices "are driven more by overall supply and demand."
He said that there was no question that a devalued dollar affected the price of oil, but he said it was more of an indirect factor: "I go back to Econ 101 and the old supply and demand curves. I tend to believe it’s really the market fundamentals."
To understand the cost of a price of a gallon of gas, divide the price of a barrel of crude oil by 42 gallons -- the amount that one barrel will produce. So, at $105 a barrel, that’s $2.50 a gallon. State and local taxes add, on average, 49 cents to that. Add in the cost to refine the oil into gas, storage, shipping and profits along the way, including for the gas stations, and you’re quite close to the pump price, API spokesman Bill Bush said.
Tom Kloza, chief oil analyst, Oil Price Information Service, which follows prices for groups, including AAA: "Prices rose first because of higher crude prices -- U.S. domestic crude advanced to about $110 (a barrel) and overseas sweet crudes fetched a price as high as $130."
The reasons behind the prices increases include "growing consumption in emerging economies; money that has been parked (whether through passive investment or active speculation) in crude oil purchases; and worries about Iranian supply and other MENA (Middle East, North African) country issues."
Kloza said that a weaker dollar "exerts upward pressure on oil, since all oil transactions are priced in dollars."
Pam Moen, spokeswoman for AAA Wisconsin: Many experts blamed rising tensions with Iran over that country’s nuclear program. "If this were to escalate, there could be some disruption caused by Iran in the world’s oil supply," she said.
Prices in the Milwaukee market were also higher than the rest of the state because the area is required to used a most-expensive "reformulated" gasoline, she said. Also, supplies tend to tighten and prices go up in late winter as refineries switch from winter to summer fuel blends.
Adolfo Laurenti, deputy chief economist for Mesirow Financial, a private financial services firm in Chicago, who frequently comments on the economy: There is "no correlation between Fed actions and the price of gasoline."
It’s simple supply and demand, PolitiFact Georgia wrote in 2011. Geopolitical forces on the other side of the world are a major price driver, as is the state of the global economy. Energy technology plays a role too.
"It’s really complex to explain to people how energy markets work. So in campaigns people are always looking for the bumper sticker," Jay Hakes, former director of the Energy Information Administration under President Bill Clinton and author of the book "A Declaration of Energy Independence" told PolitiFact Georgia.
Hovde said others have written extensively about the same link he is making, between the budget and monetary policies and gas prices. He did not point us to anything in particular.
We searched and didn’t find much evidence to substantiate this claim.
One oft-cited piece was a May 16, 2011 commentary produced by the staff of the Joint Economic Committee Republicans in the U.S. House of Representatives.
"In much the same way that one can use the Consumer Price Index (CPI) to measure the cost of living, one can index the price of oil, an international commodity, to the value of the dollar (to) measure the impact of the dollar’s declining value on the price of oil."
The paper concludes that if the value of the dollar remained unchanged since the Fed began using monetary policy in 2008, "the price of oil (Brent Crude) would be $17.04 per barrel less." The paper applies the same logic to gas prices, concluding that the price of a gallon of gas is 56.5 cents higher than if the dollar had not declined.
The commentary, however, doesn’t take into account any of the factors cited by other experts that affect the price of oil -- rising Mideast tensions, greater demand from China, and so forth.
The committee’s staff report, was cited in numerous blogs and opinion pieces, including one published by the San Francisco Examiner on May 17, 2011 by the committee’s vice chairman, Rep. Kevin Brady, R-Texas.
Hovde claimed that actions by Obama, Congress and the Fed’s monetary policy had devalued dollar led to higher gas prices.
The candidate uses a broad brush to describe the Federal Reserve’s actions in the wake of the financial market and housing meltdown. The value of the dollar factors into the equation, but as a secondary factor.
We rate Hovde’s statement Mostly False.
Hovde for Senate "Pain at the Pump" radio ad
Eric Hovde, speech and interview, Milwaukee Press Club Newsmaker Luncheon, April 24, 2012
Milwaukee Journal Sentinel, "Gas prices accelerating past $4 a gallon takes toll," March 16, 2012
PolitiFact National, "American Energy Alliance Blames Obama for High Gas Prices," April 16, 2012
PolitiFact National, "Gasoline Price Blame Game 2012," March 22, 2012
PolitIFact National, "Ron Paul’s claim on gas prices touches off fire," Feb. 24, 2012
PolitiFact National, "Barack Obama says Arab Spring sent gas prices soaring," Oct. 7, 2011
Forbes.com, "Gasoline prices aren’t rising, the dollar is falling," Feb. 22, 2012
Forbes.com, "The Federal Reserve’s explicit goal: devalue the dollar 33%," Feb. 6, 2012
WSJ Fed on dollar devaluation
AAA Daily Fuel Gauge
Email interview, Tom Kloza, chief oil analyst, Oil Price Information Service, April 26, 2012
Telephone interview, Bill Bush, spokesman, American Petroleum Institute, April 25, 2012
Telephone interview, John Felmy, chief economist, American Petroleum Institute, April 25, 2012
Telephone interview, Pam Moen, assistant vice president, public affairs, AAA Wisconsin, April 25, 2012
Bankrate.com Quantative Easing Timeline
New York Times, "As U.S. dollar’s value falls, currency conflicts rise," Oct. 20, 2010
New York Times, "Quantitative easing news," April 25, 2011
Joint Economic Committee Republicans hearing on gas prices, April 26, 2012
Joint Economic Committee Republicans, "The price of oil and the value of the dollar, " May 16, 2011
Email, Karen Nye, managing director, multimedia and communications, economic analysis, office of the chairman, Mesirow Financial
San Francisco Examiner, "The Fed’s easy money is driving gas prices higher," May 17, 2011
U.S. Energy Information Administration, Net Production of Finished Motor Gasoline
Read About Our Process
In a world of wild talk and fake news, help us stand up for the facts.