The Price of Oil and Consumer Spending

Excerpt from Raymond James Economist Dr. Scott Brown's latest economic commentary:

This year’s increase in crude oil prices (up 38% since December) has come as a shock to most observers. The price of oil is always a major wildcard in the economic outlook. At the start of the year, the futures market had suggested some moderation in oil prices, but the futures market has not been a good predictor of prices in the last several years. Until this year, the rise in oil prices has been gradual, allowing households and businesses to adjust over time. Many households were able to tap into the equity in their homes, but home equity lines of credit have now been tightened. Others have begun carpooling to work or have consolidated errands (making one trip to minimize fuel costs). Businesses were able to squeeze out efficiencies, offsetting the impact of higher fuel costs.

For consumers, the impact of high oil prices depends on the magnitude of the increase and its duration. After Hurricane Katrina, gasoline prices spiked above $3 per gallon. Consumer spending slowed, but quickly rebounded when oil prices retreated. Similarly, gasoline spiked above $3 in the summer of 2006 and spending slowed again, only to rebound as oil prices retreated into early 2007. The average price of gasoline has now been above $3 for more than half a year. The impact on the consumer has increased. Higher food and energy costs have more than absorbed the increase in average wages over the last year.

Comments

[vaduz]

this means that the real economy will really be hurt

[sivere]

At this juncture in history, we are getting hit with multiple punches simultaneously. We have a speculative bubble unlike anything we have ever seen (i.e., tulip bubble, etc.). This bubble CREATED the housing crisis. We have a serious energy problem, caused at least by a combination of US foreign policy (Iraq invasion), middle east geopolitics (related to the first point- Iran vs. US and Israel, Israel vs.the rest of the middle east, US support for Israel, Europe vs. US, etc.). Add to that the dynamic growth in China, India, and Asia in general, vying for the same oil, with no easy way to crank up production, plus an at least temporary food shortage, and we are potentially in a heap of trouble.

Now the peak oil folks are saying, 'see, we told you so' (high gas prices, political turmoil), and the environmentalists are saying ,' see, we told you so ' (food shartage, storms, bad weather).

We need to keep cool heads at this point. First, there is evidence enough that the various political situations, including relative falling petroleum supply (i.e., we cannot just crank up oil supply to meet demand) coupled with a panicked rush to commodities due to the financial collapse and various derivative contracts, shorting, etc. are big factors in the energy issues.

Now, peak oil eventually may be real, and with half the world waking up and developing, we need to take the underlyiong theory seriously. I think $120+ barrel oil may end up saving us IF we act NOW to start developing alternatives. We need tax incentives, government sponsorship, as well as good old American ingenuity to kick in NOW.The $120/barrel oil creates the economic framework to make alternatives possible.

This is not the time to give up as some of the more liberal peak oil advocates imply we should. A wise Catholic Saint once said something like 'Know that God can do anything, but act as though He will do nothing'. Let's not forget there is a God, and He could be testing us, He could be punishing us. We do not know for sure. But do not give up. Turn back to some of our basic Christian values (and natural law in general), think about what we are doing and why, and let's roll up our sleeves to solve this issue- not just prepare for the end, and hide in the wilderness. It is not all criticism for the more liberal peak oilers- some of their ideas about reviving urban living are not all bad, and make sense certainly in the short to medium timeframe. Much of their criticisms of suburbia deserve some consideration.

Let's also not get all tied up with Gore gloom and doom over highly speculative theories about disasterous human induced CO2 warming of the planet. In fact we may be headed for a little ice age! Let's develop any energy source we can, and not let the environmentalists tell us (especially the U.S., China and India which have extensie coal reserves) that coal is out because of the CO2 problem. This is pure insanity at this juncture. If the peak oil problem is allowed to play out because of our inaction, you will see an environmental disaster of unimagineable proportions. Even the anti-Christian Malthusian Darwinists could not create a scenario so hororible (though God knows they keep trying).

Turn back to basic values, including. God, country and family, roll up your sleeves, do not give up, and let's work together (with the rest of the world) to solve the problems ahead of us.

siv0.com
TakeBackTheFed.com