Under the forces of supply and demand, gasoline prices should be falling, giving a break to households and placing a cushion under the falling U.S. economy.
Under the forces of 2008, the nation has more gasoline in the tank than at any time since early 2002 - yet gas is $3.15 a gallon with no peak in sight.
Blame speculators, a falling dollar, the federal deficit and continued, breakneck growth by China and India. Spare a thought for Federal Reserve chief Ben S. Bernanke while you're at it. His main tools to forestall a recession are adding to the problem. Energy inflation is twice as bad in the United States as in Europe, thanks to the wimpy greenback. Since the beginning of 2006 oil is up 60 percent in dollars but only 30 percent in euros.
Budget deficits and weak corporate profits were already driving down the dollar. Investors dump U.S. investments when growth slows and dollar-based liabilities soar.
Lower interest rates have made things worse. Bernanke and the Federal Reserve have cut short-term rates by more than 2 percentage points since late summer to try to lower business costs and spur growth. That nudges investors to sell dollar-denominated paper and seek higher returns elsewhere.
Once the dollar was an automatic refuge, the first place international investors socked dough in uncertain times. Lately, however, the most popular safe harbor isn't the dollar, the Swiss franc or even the euro. It's energy.
People are piling into oil and gas futures, probably with money they raised by dumping dollar-denominated stocks and bonds. Oil investments are seen as protection against further dollar declines.
Bernanke's lower rates have fueled the trend by furnishing cheap funds for investors to spend on the New York Mercantile Exchange. So he's simultaneously hurting the greenback and driving up gas prices - even though inventories are at a six-year high. That won't help the economy recover.
Energy may be the next bubble investment. Each time the Fed breathes life into the economy with lower rates, the extra money floods into some fad asset - first Internet stocks, then housing, now oil?
Unlike the stock and real estate bubbles, however, energy appreciation on balance is an economic drag rather than a stimulant. Most U.S. consumers don't own significant energy investments. If fears of energy inflation drive up long-term interest rates (investors demand higher rates to compensate for inflation), the U.S. economy will fall into deeper trouble.
True, if oil is a bubble it will someday deflate. Some analysts forecast oil will fall from $100 a barrel to $60 in a few years. A slowdown in China and India could cause prices to fall even further.
Meanwhile, however, the country could be in for some potholes. Past oil shocks can be explained by supply problems. The Arab embargo of 1973 caused one shortage, the Iranian revolution of 1979, another.
But now gas is soaring even though the U.S. has 26 days of supply on hand, the most since early 2002, according to figures from the Energy Department.
The self-correcting mechanism of past recessions - weak economic growth caused lower demand, which led to falling energy prices, which contributed to a recovery - isn't working this time. Perversely, a weak U.S. economy is driving petroleum prices up.
That may be even more worrisome than a supply shock. Heaven help us if, for some reason, we get one of those, too.
jay.hancock@baltsun.com