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10 Ways Rising Oil Prices Will Endanger the U.S.

By   /   February 27, 2011  /   28 Comments

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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.

 

 

Ten Ways Rising Oil Prices will Endanger the U.S. Recovery

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. . .

For the rest of the story goto InlandPolitics.com

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About the author

Branson Hunter

Senior Corespondent At Large

"The ends do not justify the means." If you use illegal mean to accomplish a legal and even desirable result, the good result does not make the bad means you used justifiable.

28 Comments

  1. Paparrazi Paparrazi says:

    Generally there's not much to disagree with on the 10 ways rising oil prices will endanger the US. I'm sure we all could think of more but keeping on point it's good to start thinking of the economic repercussions so pointing out small areas of disagreement really wouldn't benefit readers.
    I'd be interested in your take and maybe another post about the strategic affects of rising oil prices on the U.S.
    How will this affect foreign policy, trade agreements, military moves etc if your willing.

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  2. Branson Hunter Branson Hunter says:

    Civility trumps my mental killfile.

    Paparazzi, that's quite a large assignment you have for me. I am willing to answer all of your questions in depth. First, however, let me get my Ph.D in economics and a couple master degrees in foreign relations and international law. Not putting you off here, I just want to do an outstanding job for you and the blog, so I'll get back with you in about five or six years.

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  3. Paparrazi Paparrazi says:

    That's pretty funny! With your new pic they won't take you seriously like I do. Hooray, March 26th came early.
    Relax, your post didn't require any of that elite education anyhow. That's probably why I didn't see much to differ on.
    Really, all my question really wanted was to provoke another worthy topic. That's all.
    My guess is that the oil demand is going to stress relations between other wise friendly countries as supplies dwindle each of the western countries will do things they never thought of doing to provide the milk (not breast) of their economies. I expect turmoil throughout the western world as it attempts to fight off inflation, rising unemployment, food shortages, riots and general unrest. Yep, I agree with Cora's sentiment on it's going to be a long ride. I wasn't trying to assign you with some huge task. Nothing more than my crappy overview. Why, because I know you come from a different point of view and I wanted to see how your viewed things, most of my friends are liberal. I know that your lean left but that's not where you park your car. I lean right. I really enjoy other points of view. You'd be amazed at how many times a good post can influence or change my opinion on things.
    Recently a British friend responded to my complaint of my British grandmother. I told him how she was kind of snotty and not loving or caring. He pointed out that her generation went thru the war and personally suffered a different fate than Americans did and so on. Now I have peace about her. Remember Silent has the same letters as LIsten. If we truly want to impact the thoughts of others. Sometime we have to be silent and listen.
    Oh well. sigh, the snow is melting, the sun is setting and a Bald Eagle just flew over my house heading in your direction, really, as the sunsets behind me. I've got to stop and take that in.

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  4. Cora Heiser cora heiser says:

    Well,
    I will believe that gas prices are affecting America, when the roads are empty, when the restaurants are empty, and Wal-Mart parking lot is empty.

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  5. Cora Heiser cora heiser says:

    I am upset that there is no reason for the hike in prices and our Fearless Leader doesn't have the guts to do anything about it and as I stated before, we keep on buying it (me included)

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    • Tim Humphreville Tim Humphreville says:

      Cora, could it possibly be that 5.00 to 6.00 dollar gasoline could be the best thing in the long run for this country, that might force the politicians[and the people who elect those politicians] too put a energy plan in place, one with some common cense, that stops giving billions of tax dollars to promote the electric cars that will not be the next power for millions of cars,seeing as we can not turn on our air conditions with out rolling blackouts now, One that uses natural gas, solar ,wind, and yes oil, Oil that is produced in the US. Drill onshore, offshore, deep water, shallow water, Anwar, Drill where the oil is. Oh and as we do this we create millions of jobs wow would that

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      • Paparrazi Paparrazi says:

        I can agree on some of your thought here. High gas prices are a huge tax on everyone but affect the lower income citizens harder. As a general consensus economist agree that high taxes are economically suicidal given our current economy. The higher prices are very likely to trigger hyper inflation. Call me a conspiracy theorist if you will. I have seen evidence that Middle East interests have supported american groups that are Eco Friendly. Supporting these groups who are opposed to drilling helps keep OPEC in the drivers seat and the Untied States and Canada paralyzed from oil independence. A similar tactic was used by Las Vegas Casino interests in opposition to California Indian Casinos. I read that tiny print on the anti casino ads that were sponsored by big time casinos in vegas. I wonder why Michael Moore failed to note the OPEC connection to Greenie Groups? As far a President Obamas view on high oil prices he must be snorting his brains out with joy. That was part of his plan.http://www.youtube.com/watch?v=BqHL404zhcU
        I've gone on the record, which was a handy 2 weeks before the gulf oil crisis as being against deep water drilling. Between Cananda and the USA we have enough oil to support us for over a hundred years. By then we will have new technology that won't put the deep water oil wells at risk so no need to drill now. We also have vast amounts of natural gas and coal. Solar and wind are very unproductive and not viable options for sustaining a thriving economy.

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  6. Cora Heiser cora heiser says:

    Tim,
    I think it was summer '08, gas prices were in the $5 range, was it a test run? Was the election influenced by it? I personally think we should say dril, baby drill In Alaska, we bought "Seward's Folly" and thought it was pretty great when we saw all the natural resources to include oil. Let's use it. I am for telling OPEC (yes, technically they don't "set" prices)to stuff it.

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    • Mark Clemons says:

      our national resources should not be for the sole profit of global oil companies, do we have plenty to keep america moving, more than enough. What happens is our resources are the cheapest on earth for these global companies, that is why they are so sought after. They maximize there profit by seeking the cheapest profit, it is not the american people they want to drill for, don't believe the BP BS.
      There is nothing wrong with drilling, but lets only export the leftovers. Most of the oil that flows through the AK pipe line is loaded onto ships bound for asia, thats right under 20% makes it to the lower 48.

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      • Dan OBrien Dan OBrien says:

        Hey Mark... be a Pal.... help me out.... What the Fluck does, "They maximize [their] profit by seeking the cheapest profit" mean???????

        I don't know about you but if you maximize profit you get the most you can from the product you are selling above your costs. but you said, "They maximize [their] profit by seeking the cheapest profit".

        What the hell are you trying to say??

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        • Mark Clemons says:

          oops, cheapest source ( USA)to maximize their global profit, they have been brainwashing the public into thinking we were dependent on foreign oil.

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  7. h2 says:

    Whats so difficult? We sell off our resources at bargain prices and they eat it up and in return sell them elsewhere where it does us no good.
    Try smoking one first, then try reading it.

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    • Dan OBrien Dan OBrien says:

      WAh...? Try not smoking one before you try typing.

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      • h2 says:

        I just don't see why it is so hard to understand what Mark said. Buy low, sell high. Our free enterprise system is exploited by others. No wonder they praise it. We sell out too cheap. Our profit is too low.
        What we have in the ground is our reserve. Why waste it? Why the hurry to let the Dutch pump it out? Does Asia need it that bad?
        Why not maximize our profit? Save our reserves for truly hard times.

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  8. Matt Foose says:

    Is it possible that very real religious agendas are being overlooked?

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    • Paparrazi Paparrazi says:

      Yes it is possible of course. Almost everything that emanates from Middle East has a Moslem influence.
      It's also something the commander and chief is well aware of. I believe he is using the current crisis in the middle east to work in his energy and economic plans. Make no mistake, he want's fuel prices to rise. He want's the USA to be dependent on foreign oil. http://www.charter.net/news/read.php?rip_id=%3CD9LN61A03%40news.ap.org%3E&ps=1011

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      • Mark Clemons says:

        Come on bushobama owe there soles to the oil companies/ banksters, and guess what they are foreign. The US of A has plenty of oil, the drilling rights are sold to the global companies so they can send it to offshore markets. May I say once again the USA is the cheapest source for crude,I suppose you believe oil comes from dionosaurs who dug 5,000 ft holes to bury themselfs millions of years ago.

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        • Paparrazi Paparrazi says:

          Mark: Were you trying to make a point? BTW, I'm not sure if you got the note. Bush in not the commander and chief anymore. The current situation in the middle east is being handled by the Obama administration. Bush is out of power. Today, no one exactly owns or controls the US oil companies. There are major shareholders, but those are mostly other companies like mutual funds or pension funds, not individuals. If you want to know who controls the oil companies, it is investors in the long run, but the board of directors and the CEO in the short run. Much of the same is true of American Banks. A better question is who owns the Federal Reserve? It aint the federal government.

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          • Mark Clemons says:

            from bush to obama, has anything changed, we have the same DOD leadership, we have the same club in the treasury, and yes i do uderstand the federal reserve bank is not part of our three branches of government, it is a global private bank.
            get ready QE3 is comeing.

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      • Matt Foose says:

        Thanks for the link. One thing stuck out... [Carney dismissed Barbour's remarks, saying they "were clearly made in the context of 2012 presidential politics."] Everyone has been so conditioned to accept the lies these guys pedal during campaigns. They don't even need to hide it anymore, unreal.

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  9. desertrider desertrider says:

    Who's Obama? I thought Jimmy Carter was President.

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  10. Richard Myers Richard says:

    ha ha ha, not sure it makes any diff any more, they all owe their souls to corp's...........John Q Public is screwed

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  11. Dan OBrien Dan OBrien says:

    Jimmy Carter era.... True story:

    I was in line at the gass station on E st by the Marshal CO. At the time I was working for an Alarm Company waiting for an opening at the phone company... Anyways the price of gas was 34 cents a gallon... and I was making all of $3.35 an hour (by the way raising two young kids on that wage). Here I was in this long line to get gas, it was and odd plate day.... all of a sudden the price went from 34 to 78 cents a gallon in one single time period.... I was about to get to the pump and the clerk was changing the price ..... Yeah I remember Jimmy Carter

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  12. Richard Myers Richard says:

    Dan, you should have been like me, I rode my old Moto Guzzi so there was no odd or even days for bikes,,,,,,,plus 50 MPG, I was in the pool const biz for a short time then, I hauled tools and parts on that old thing from the valley to Santa Maria.

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  13. A loyal Cactus Thorn reader sent me this website regarding the cost of gas throughout American. California sticks out like a sore thumb!
    http://www.gasbuddy.com/gb_gastemperaturemap.aspx

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  14. Richard Myers Richard says:

    Calif is one of the worst on the price of fuel. Another eco freak driven cause for biz to leave this state.

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