While John McCain admitted yesterday that his off-shore drilling proposal would have mostly a "psychological" effect on today’s oil and gasoline prices, he didn’t say which way. Yesterday, the price for oil futures in coming months rose to over $140 per barrel before settling for a record just under $140/bbl. It’s back near $142/bbl this morning.

That and continuing worries about banks’ exposure to write downs sent the DOW industrial average plunging nearly 360 points, over 3 percent. The DOW is now at its lowest level in more than a year.

Using psychology to influence speculation makes sense, but it helps to base it on some credible foundation. That was undercut by EIA, the federal government’s official energy forecaster:

Guy Caruso, who heads the federal Energy Information Administration, said consumers would see little savings at the pump.

"It would be a relatively small effect, because it would take such a long time to bring those supplies on," Caruso said during a briefing at the Center for Strategic and International Studies on the EIA’s new long-term international energy forecast. "It doesn’t affect prices that much."

And it didn’t help when the head of OPEC applied a little pyschology of his own, predicting that oil prices would rise to $150 to $170/bbl by the end of summer. Then the Terminator dismissed McCain’s ideas while embarrassing Republican Governor Crisp at a gathering in Florida:

"Politicians have been throwing around all kinds of ideas in response to the skyrocketing energy prices, from the rethinking of nuclear power to pushing biofuels and more renewables and ending the ban on offshore drilling, it goes on and on the list," Schwarzenegger said, per The Saint Petersburg Times.

"But, anyone who tells you this will lower our gas prices anytime soon is blowing smoke."

Meanwhile, record gasoline prices and fears of more to come are killing the US auto industry. General Motors’ stock sank yesterday to its lowest level in 33 years, and the industry is stuck with unsold inventories of low-mileage SUVs, cars and trucks while Americans try to adjust to gasoline prices heading towards $5/gallon.

Of course, no one saw this coming. After all, I am the only person in America still alive who remembers the OPEC oil embargoes of the 1970s, the Iranian revolution, and the severe economic recessions they caused. Back then, the price of oil first doubled and then quadrupled again, and the American economy tanked both times. Jimmy Carter warned us, but Ronald Reagan told us to forget about all that, and we did.

So no one could have predicted that forgetting about energy efficiency/alternatives or invading Iraq and threatening war against Iran for the last five years would reduce oil supplies and exacerbate oil price volatility. And who would have thought that taking the US economy from about 1/3 reliance on imported oil then to nearly 60 percent dependence now would lead inexorably to an energy and economic crisis while undermining our national security?

If only someone had warned us.