Economic policy could impact Bioheat

By Erin Voegele | October 25, 2010
Posted Nov. 16, 2010

The Federal Reserve recently announced it will buy $600 billion in U.S. treasury bonds. The action, known as "quantitative easing," essentially increases the supply of money within the economy, thereby decreasing the value of the U.S. dollar when compared to other currencies. While this type of action is intended to help jumpstart the economy, Matt Cota, executive director of the Vermont Fuel Dealers Association, said it can lead to rising commodity prices, which hurts consumers.

As the Federal Reserve prints money and buys treasury bonds, the dollar is devalued, which is great for industries that export products overseas, said Cota. This is because the relative price of those products and services is reduced, making them more attractive to buyers in other countries. However, the reduced value of the U.S. dollar isn't great for everyone. It negatively impacts American citizens who must purchase commodities, such as home heating oil, at higher relative prices, Cota continued. Since rising prices will affect not only petroleum-based commodities, but agricultural commodities as well, Cota said the biodiesel industry could also be impacted through higher feedstock prices.

"The idea is that we can jumpstart the economy by printing more money, making exports more attractive, and thereby those jobs will flourish-maybe they'll be created or maybe they'll stay in business because the export markets heat up," Cota said. "But at the same time, it has the debilitating effect that it slams the brakes on efforts in nearly every community to get out of the slump that we are in."

This can be especially true for heating oil suppliers. "When prices are higher [fuel oil retailers] have to borrow more money in order to purchase wholesale product," Cota said, noting that higher retail prices also make it more difficult for consumers to pay their bills. "We don't like high prices…we thrive on low prices," he continued. "It's difficult for small facility heating oil dealers-of which there is very many here in the Northeast-it's harder for them to run a business when they have to carry so much in loans."

Complicating matters, Cota continued, is the fact that financial regulations signed into law last summer, to stop Wall Street traders from driving up the price of oil, have yet to take effect. "Washington insiders say it is practically impossible for regulators to meet its January deadline for setting new speculative limits in energy markets," he said. "As the cold weather sets in, heating fuel retailers and their customers are facing a double whammy-lack of oversight in the commodities market and a monetary policy that hurts all consumers."
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