Fuel Prices Weigh on Businesses

Interesting article:



http://www.msnbc.msn.com/id/9051450/


Abner

 

You posted this four days ago, Abner, and there's been no feedback. I find that curious. I haven't gone and read the article to which you link, but I presume it's the same story I saw on MS-NBC, and heard on NPR, about Wal*Mart's posting some bad numbers and blaming increased gas prices... what with so much of their clientele typically living pretty much paycheck-to-paycheck anyway (or maybe even hand-to-mouth), and typically being the first to have to make tough "eat or buy cheap crap at Wal*Mart" choices.

This is actually a huge story... and it's curious that those on the Right around here have little or nothing to say about it. I mean, yes, they're talking about rising fuel prices in other threads; but the impact on the economy -- the potentially dire impact... and sooner than later -- is being sort of ignored. Rising fuel prices could almost single-handedly turn our already-precarious economy on its ear... and in a big-assed hurry!

I reiterate something I said in another thread, only I'll expand on it a bit here: In 1956, the year I was born, gas prices were, I think, in the neighborhood of $.23 a gallon or less. Even twenty years later, in the 70s, it was still in the $.40/gal range (and spiked up to around $.67/gallon or thereabouts during that decade). But even with that spike, and at least one or two others in the ensuing years, it still took roughly the first thirty years of my life for gas to rise even above a dollar per gallon; then another decade or so for it to hit $2.00/gallon... where it pretty much stayed for a while. And then, seemingly, only months (I know it was longer, but it just felt that way) for it to hit just over $3.00/gallon...

...this last spike on the watch of a president with huge oil interests.

Now, I realize that none of those numbers is adjusted for inflation; and, in fact, I read something somewhere very recently which stated that, adjusted for inflation, the price of gas in 1956 was, in today's dollars, more along the lines of $1.99/gallon; and that using that kind of math, my kind of concern is overblown. Fine. But my concern is with what history tells us about the price spikes, and what it does to the economy.

There is no question that fuel price spikes in the '70s and '80s accounted for a great deal of the inflation that we experienced in those years. Fuel prices affect everyone... and manifestly. If you can't afford to get to work, or if getting to work costs so much that you can't spend -- or at least spend as much -- in other important areas of your life, then you're just plain screwed. On some vehicles, it can now cost $60 or more to fill-up one's tank, while mileage stays the same. Suddenly employer-provided flat-rate fuel allowances calculated into bi-weekly paychecks won't even cover two or three tankfuls, yet five or eight or ever more tankfuls were burned-up by the employee doing his/her job during those two weeks. My life partner is experiencing precisely that right now. She gets a flat gas allowance to cover the driving around that she must occasionally do for her employer, and it's so well calculated that she usually actually makes a buck or two -- seriously, never more than maybe $8 or $12 or something like that per pay period, and usually not anything at all. But now she's so in-the-red on her travel expenses that she's had to memo her boss and basically say, in effect, that this is so important that if it can't be remedied relatively quickly, it could affect whether I continue to work for you. And, so far, he's not responded. So she's polishing-up her resume.

This affects everyone in this country. Why the Bush43 administration does not see it as the crisis that it truly is is... well... understandable, I guess, now that I think about it.

[sigh]

Where are we headed?

Am I the only one who sees this as freakin' huge?

 

I am afraid so. All indicators show that in spite of the brutal increase in the price of the fuel (due largely to a larger demand in developing and developed nations), the US economy is also doing well, growing at about 4% in this current quarter. Olé tus cojones, America. This is what is surprising, that in spite of the steep rise in the price of oil, neither the stock markets nor the growth of the global economy have been apparently influenced by it. So I think it is still early for apocalyptic messages.

 

I refuse to spell cojones. I got it wrong TWICE last time and I'm not gonna risk it again.

Really, I don't think a fuel spike will hurt as badly as you all think it will; the "core rate of inflation" always excludes the "volitile food and energy sectors" thus the government doesn't have to ADMIT to the inflation that hits US in our wallets...

Besides, what would we have the President do? Invade an oil-producing country? THAT doesn't seem to work very well...

Institute a windfall profits tax on the oil companies? God forbid! He told us himself that those folks are his "base".

Require higher CAFE standards? Well, that's out, regulation is EVIL, you know...and in this case, it's likely unnecessary. Rising fuel prices are already causing Americans to eschew enormous, bloated, overpowered cars and SUVs...

I know! CUT AMTRAK!

 

Exactly, when Americans limit their gas´consumption, its price will decrease. Neverthless I saw today on TV that gasoline costs something like $ 2.60 per gallon. Wow..... That should decrease its usage.... Here I paid this morning €1.4 per liter. About $ 6.5 per gallon. So American authorities have still some margin for maneuvre. If we make it here, so can you.

Cojines means pillow. We forgot last time. Cojones is such a versatile word. I love it. BTW, in Madridian slang, "No me toques los cojones" means don´t f*** with me. Weird people!

 

You just wanted us to believe you were swinging some fat congas.

 

No, but I know that most Congasmen are fat...

 

I believe this is indeed a very important story. It is hitting the little guy and small to medium sized businesses very hard. In my line of work, I have been talking to business owners who are afraid they may have to lay off or close their businesses. This in turn will affect not only the business owner, but his employees and their families. Logic dictates that presently or eventually, this non income producing segment of our population is not stimulating the economy with their working dollars, paying of taxes, etc.

As far as the economy being good, I take that with a grain of salt. Its kind of like when the President says home ownership is at a all time high, but negates to mention the fact Bankruptcies/foreclosures are also at a all time high. Homes are being purchased with principal only loans, extremely risky. For example, a young couple on our block bought a modest three bedroom home. Their payment is $3,500.00 a month, and that was a couple of years ago. If one of them loses their job, they lose the home, plain and simple.

Anyway, this is just my humble opinion,


Abner

 

Hey JLV:

Gas is $3.01 per gallon where I live!

Like you say, I will survive. The ones most affected are the minimum wage earners and those on unemployment, small businesses, etc.

Just out curiousity, do they have Saet cars in The Netherlands? Just curious.

Take care buddy!


Abner

 

Sí, pero aquí comemos los huevos rancheros! ¿Huevos de caballeros?

 

Ay dios mio!!!


Abner

 

As far as the economy being good, I take that with a grain of salt. Its kind of like when the President says home ownership is at a all time high, but negates to mention the fact Bankruptcies/foreclosures are also at a all time high. Homes are being purchased with principal only loans, extremely risky. For example, a young couple on our block bought a modest three bedroom home. Their payment is $3,500.00 a month, and that was a couple of years ago. If one of them loses their job, they lose the home, plain and simple.



Oops! I meant to say "Interest" only home loans are extremely risky, not principal only.


Abner

 

Wow, when I was living in the US, only six, seven years ago or so, I could find gas stations where the price was $ 0.99 per gallon.

Abner, do you mean Seat? If so, yeah, there are a lot of them. Seat Toledo, Seat Ibiza Seat Cordoba, Seat Leon,... Those are some of the most popular cars here.

 

An interest only loan is not necessarily risky, but it is foolish. When you think about it, an amortized loan (repaying interest-plus-principal) is paid back over time, usually 30 years for a home mortgage. The guy who takes out an interest-only loan can pay for 30 years and still not make any headway against the principal. What is risky is when banks relax their lending standards too much. Within my living memory, banks would only lend an amount that would result in monthly payments of no more than 25% of your monthly income. Any more than that and you are pretty much screwed if you lose your job.

 

You are absolutely correct Ted! The problem out here in Cali is the home prices are so high, people are lured into loans by offering interest only loans, then after a certain amount of years a huge ballon payment is due!

I am very lucky because I bought my real estate when the market was much, much, cheaper. My mortgage is nothing like the example I gave of $3,500.00 a month.


Thanks for your comments Ted!


Have a good weekend!

Abner

 

Says someone who probably (I don't know, but it's a surmise) only goes to Wal*Mart for Windex and fishing tackle... if at all. But there are people whose income level dances around or just hangs below the poverty level who are being hit really hard by this... and can't buy clothes at Wal*Mart.

This is a microeconomics issue!

People live routine lives, driving approximately the same number of miles each day, week or month. Obviously, it varies... but I'm just sayin' generally. As gas prices are rising -- both hugely and fast -- the number of miles they're driving isn't going down; nor, unless the buy a new, more fuel-efficient car, is their mileage improving. So for many of them, we're talking about an already huge expenditure becoming not just larger, but much larger over a short period of time.

A Honda Civic with a 10 or 12 gallon gas tank now costs $30 to $36 to fill... up from $20 to $24. Some people pretty much only drive to work and back, but must commute a not-insignificant distance... meaning that they may be filling-up more than once per week. If so, that Civic owner is now looking at having to spend roughly $20 more per week... $80 or thereabouts per month... maybe $100.

Some people -- ne, millions of people -- are so tightly budgeted that that seemingly inconsequential amount of money each month could mean the difference between eating relatively healthy meals, and having to switch to mac & cheese with hot dog slices.

We should not be so cavalier with our macroeconomic analysis. This fuel price increase is hurting people... the working poor. Why do you think it was Wal*Mart that was first to start whining? That's where the working poor shop.

When Macy's complains, we'll see if you're still whistling the same tune.

 

I'm wondering whether everyone else has been having the same problem I've been having here: I hit the link Abner posted and nothing comes up, except the article title (even after waiting forever).

 

DesElms, you are talking about deep structural problems that have little to do with oil prices or for that matter with the strength of the US economy. Those families that live in threshold of poverty are vulnerable to all changes in the prices and to inflation. However, all data seem to indicate that the economy is not being affected (it’s on the news al the time), and inflation rose at a slower pace than expected showing a great resilience (according to experts) to oil price increases. Those persons you named should go to work either by bike (like I and many others do) or by public transportation. Or, better yet, as your partner did, they could start polishing their resume. The economy is growing in spite of all negative auguries, and offers plenty of opportunities for the willing (willing to move her or his ass to improve his or her life).