I don’t know about the rest of you but I’ve already began rationing the fuel in my gas tank. I take less trips, do less volunteer work, buy less and so on and so fourth. Increases in gas prices has already began to take food off the tables of struggling Morongo Basin residents. And each time we all go to the grocery market, we are agitated and appalling by the spike in groceries.
Things are getting tough. Btw, do not get your vehicle towed for some silly thing in Yucca Valley (a Commercial Death Zone) because the Town Council gleefully voted to gouge its residents with towing recovery fees – in addition to penalty fees, outrageous of storage fees ( a scam) and towing fees. If you don’t pay all of them promptly you may loose your vehicle (and some will). The junta on the Council is not our friend, but our worst nightmare! Oh… how I digress. Back to gas prices.]
The introductory to this Atlantic article as viewed Inland Politics was snipped for brevity. The remaining 10 ways rising oil prices will endanger the country have been left untouched. It’s an interesting article by By Daniel Indiviglio.
Mr. Indiviglio is an associate editor at The Atlantic, where he writes about credit markets, regulation, monetary & fiscal policy, taxes, banking, trade, emerging markets and technology. Prior to joining The Atlantic, he wrote for Forbes. He also worked as an investment banker and a consultant.
1. Consumer Spending Weakens
The most obvious casualty of rising oil prices is consumer spending. If Americans are forced to pay more for the gasoline they need to get to and from work, the grocery store, and wherever else, then they’ll have less money to spend on discretionary items. Without this extra money going to retailers and other firms, the economy won’t grow as rapidly. This possibility is of particular concern to the U.S., where around 70% of economic activity is said to result from consumer spending.
2. Hiring Maintains Snail’s Pace or Slows Further
As companies have more money to spend due to better sales and more profits, they can hire additional workers. But higher energy costs could soak up some of the money that would have been used to bring on more employees. Since energy has some impact on most firms’ costs, the higher oil prices go, the harder hiring will be for firms.
3. Home Buying Demand Remains Very Anemic
“Drastic increases in oil prices can slow the housing market because many consumers are forced to make spending trade-offs,” says George Mason University Mercatus Center Scholar and real estate finance professor Anthony Sanders. If Americans are even slower to re-enter the housing market, then its recovery will be even more difficult. Home prices have begun falling again, and more buyers are needed to stabilize the market.
4. European Contagion Spreads
Several nations in the European Union are in a very fragile state as they try to recover from sovereign debt crises. These same nations produce little oil, so shortages and higher prices could thrust them back into recession. Some of these nations also have significant manufacturing sectors, which often incur fuel-driven input costs. If Europe has more problems, its pain could be felt across the Atlantic as well. The U.S. has significant economic ties to the E.U., so when one goes down, the other also struggles.
5. Tourism Takes a Hit
As oil prices rise, so will the cost of traveling. Higher fuel prices translate into higher costs for plane tickets and automobile trips. Consequently, the U.S. will see tourism decline. This would harm a major segment of the U.S. economy. However, some states where the housing bubble was the most severe, like Florida and Nevada, will suffer disproportionally, as their economies depend on tourism. Their very high unemployment rates would then have even more trouble declining.
6. Exports Decline
Exports have been one of the factors helping along the U.S. recovery. From 2009 to 2010, exports grew by $261 billion, or 17%. This increase has helped to boost GDP. As fuel costs rise, however, global trade will suffer. More expensive shipping costs may weaken the demand for U.S. products. The silver lining, however, is that rising fuel costs could make imports less attractive to Americans, boosting domestic sales of U.S. goods.
7. Consumer Sentiment Falls
It’s very hard not to notice when the price at the pump increases. As a result, Americans are well aware of rising gas prices. If consumers worry that more expensive gas will result in their disposable income declining, then this will harm how they view their economic situation. If the steady rise in confidence we’ve seen over the past several months has been noted by firms, then they may hire more aggressively. But if sentiment hiccups, then jobs will continue to grow very slowly.
8. Investors Look Past Stocks to Gold
We have already begun to see the unrest in the Middle East wreaking havoc on stock markets. If oil prices appear to be rising rapidly, then more investor dollars could flee to safety. This would happen both because the market fears a slower recovery and higher inflation. This might be good news for ultra-safe, inflation-protected assets like gold, but it will be very bad news for investment in businesses that could provide higher growth.
9. The Federal Reserve Is Stifled
At some periods throughout the recession, the Federal Reserve was about the only thing holding the economy together. Its aggressive policies have kept credit flowing. It has also made credit very cheap by keeping interest rates extremely low, which helped some businesses survive and encouraged investment. But as oil prices rise, broader inflation could increase as well. Once that begins, the Fed will be forced to allow interest rates to rise, making credit more expensive and the recovery even harder.
10. Deficits Stay High and U.S. Borrowing Costs Rise
As the economy improves, the U.S. government can finally begin cutting its giant deficits. But rising energy prices will make it more difficult for the government to curb its borrowing for two reasons. First, the slower economy will result in lower tax receipts as economic activity is stifled. Second, falling disposable incomes will dash any hopes for raising taxes, as the government won’t want to squeeze lower- and middle-class Americans. Higher U.S. borrowing costs could result if investors don’t see smaller deficits soon. . .
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