Gas Will Be $8/Gallon By The End Of 2010

Inflation has been trickling back in, and the price of oil has rocketed recently. With crude closing just above $54/bbl, I foresee a repeat of what happened last summer, except this time I don't think deflationary forces will cause crude to come down crashing and prevent the idiotic political forces from Washington into pushing us into a full-fledged energy crisis.

Congress has made it clear any company that makes exorbitant profits is at risk. Oil companies, in particular, are on close watch. Most of the talk last year about a windfall profits tax was once oil crept over $110/barrel and the price of gas was $3 or more at the pump.

With the Fed's printing press going full blast and the continued decline in the dollar, no offshore drilling ban premanently removed, and other factors, we can expect oil to creep back up to $100 by the summer again. I think this will mainly be an inflationary event caused by the expanded money supply, but natural supply/demand will play a part as well. Nonetheless, whatever the reason is, once oil creeps above $80-$90 a barrel, Congress will officially begin its oil company witch hunt again.

Of all the dumb populist measures, the windfall profits tax is the most easy one to pass. Take money away from evil oil companies, invest it in happy renewable energy and tax cuts for the middle class, of course it will pass! I can just see Obama saying "The stock price of XYZ Oil has doubled in the past month…yet the unemployment rate is about 10% It's time XYZ Oil gives back some of its profits and invests in the future of our country."

At first, the tax won't have much effect, since whatever the firms are producing, they'll continue to produce. Windfall profits taxes don't so much affect current production but discourage investment. The tax will pretty much kill any investment in the US in fossil fuels, whether its oil or natural gas, so we'll have less domestic supply, higher energy prices, and become more reliant on foreign countries.

More foriegn imports, less domestic production, more of a trade deficit, less domestic jobs, more money printing to take care of that, more inflation, and before we know it, gas at the pump is $8/gallon, gold is $2000 an ounce or more, and life is just miserable. The stagflation scenario that the gold bug uber bears talk about comes into effect through an energy crisis, much like our financial crisis begain as a subprime issue. I expect Peter Schiff will begin his worldwide "I told you so" tour sometime in early 2011.