Foreign Policy

We've heard how the value of the dollar affects gas prices – and indeed the price of everything. I was pleased that my request for a hearing on such was granted by the Financial Services committee and we were able to hear some very informative testimony. Certainly domestic policies, regarding off-shore oil drilling bans, ethanol mandates, refining capacity, and CAFE standards are interventionist and harmful enough in the energy market.

But how does foreign policy affect gas prices? One important factor is that oil on the world market has been priced in dollars exclusively since 1973. Only two leaders have gone against this arrangement - Saddam Hussein in 2000 and more recently Mahmoud Ahmadinejad with the recently opened Iranian Oil Bourse which trades in non-dollar currencies. But since oil is otherwise exclusively traded in dollars, this means that oil producers have vast amounts of assets held in dollars. Especially since the War on Terror and the PATRIOT Act, many oil-producing nations and banks are concerned the US government may freeze assets based on flimsy pretexts. This fear contributes to dollar weakness, and therefore also high oil prices.

House Democrats recently adopted a budget with massive tax hikes, many of which are directed at those Americans who can least afford them. By allowing the Bush tax cuts to expire in 2010, this budget will raise income taxes not only on those in the highest income brackets, but raises the lowest bracket from 10% to 15% as well. Estates would again be taxed at 55%. The child tax credit would drop from $1000 to $500. Senior citizens relying on investment income would be hurt by increases in dividend and capital gains taxes. It's not just that the Democrats want to raises taxes on the rich. They want to raises taxes on everybody.

The problem is, policing the world is expensive, and if elected officials insist upon continuing to fund our current foreign policy, the money has to come from somewhere. The wars in Iraq and Afghanistan have already cost us over $1 trillion. The Democrats' budget gives the President all the funding he needs for his foreign policy, so one wonders how serious they ever were about ending the war. While Democrats propose to tax and spend, many Republicans aim to borrow and spend, which hurts the taxpayer just as much in the long run.

Last week I highlighted the irony of sending nearly $1 billion overseas in military earmarks as we close down bases here at home to save money. Our government's flawed foreign policy troubles me this week especially.

Benazir Bhutto's assasination was a great tragedy. Pakistan is now more than ever teetering on chaos. And all the money we have sent Musharraf has inadvertently drawn a target on our backs.