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Another Unintended Consequence: $80 Billion 'Gas Price' Tax On Consumption
Although U.S. demand for crude oil has fallen by 1.5 million barrels per day since 2007, anyone spending more than a few minutes on the road, watching TV, or surfing the internet will be more than unpleasantly aware of the rapid rise in gas prices recently. As we noted earlier, following January's record high average gas price, February just surpassed its own record and TrimTabs quantifies the impact of this implicit tax on consumption, noting three key factors that will remain supportive of high oil prices: Central Bank liquidity provision (ZIRP), political tensions, and implicit USD devaluation. Critically, around 70% of the benefits of the payroll tax extension has already been removed thanks to 60-80c rise in gas prices nationwide whose growth has far outstripped wage and salary growth in recent years. As Madeline Schnapp points out, while the latest round of oil speculation is likely to end with a pop, she doubts oil prices will drop much below $100/bbl as the erosion of purchasing power from high energy prices is here to stay.
TrimTabs Macro Spotlight: Surging Gas Prices Unintended Consequence of Zero Percent Interest Rates and Trillions of Dollars Pumped into Financial Sector.
Spike in Gas Prices Equivalent to $80 Billion Annualized Tax on Consumption. At Current Gas Prices, 70% of Benefit from Payroll Tax Cut Wiped Out.
We spent some time recently driving on Interstate 5, the main north/south highway in California. In little more than a month, the price of gas rose from $3.69 per gallon to $4.49 per gallon, an increase of 80 cents, or 22%. After filling our tank the last time, the change from a hundred dollar bill was just 69 cents. Ouch!
Our experience prompted us to take a closer look at what is driving fuel prices higher. Although U.S. demand for crude oil has fallen by 1.5 million barrels per day since 2007, three factors are likely to remain supportive of oil prices:
- Dictated interest rates are at or near zero in much of the developed world, and central bankers have flooded the financial system with enormous amounts of freshly printed money. One of the logical places for this liquidity to flow are highly liquid, highly leveraged commodity futures contracts. The rising number of outstanding contracts helps push prices higher, which in turn draws more speculators into the market. This speculation was the primary driver of high oil and gas prices in the summer of 2008 and is likely contributing to high prices today.
- Political tensions are heating up between Iran and the West about Iran’s threat to block the Strait of Hormuz. The fear premium from this factor is probably $8 to $10 per barrel of oil.
- There is a strong negative correlation between oil and gas prices and the value of the U.S. dollar. The Fed’s money printing puts strong downward pressure on the value of the greenback. While a weaker dollar boosts U.S. exporters, it hurts consumers, who face higher prices for commodities that are produced overseas but are priced in dollars. While the value of the dollar (DXY=78.8 on February 23, 2012) is well above its trough in the past four years (DXY=71.7 on March 17, 2008), it is well below its peak (DXY=88.5 on March 9, 2009).
The 60-cent to 80-cent increase in gas prices nationwide over the past two months is equivalent to a $60 billion to $80 billion annualized tax on consumption. Since the payroll tax reduction is estimated to have put $114 billion back in consumers’ pockets, the recent run up in oil has negated about 70% of the benefit of this tax cut.
Looking at the increase from another point of view, we estimate the annual increase in wages and salaries over the past 12 months is only $185 billion. A $60 billion to $80 billion annualized increase in fuel prices effectively wipes out about 35% to 45% of the increase in wages and salaries.
Taking a longer view, gas price increases are far outstripping wage and salary growth. Since 2005, gas prices in the Los Angeles area have more than doubled, rising from an average of a little more than $2 per gallon to $4.35 per gallon in the past week. Meanwhile, wages and salaries rose only 15.4%.
While the latest round of oil speculation is likely to end with a pop, we doubt oil prices will drop much below $100 per barrel. The erosion of purchasing power from higher energy prices is here to stay.
Real-time income tax withholdings suggest real wage and salary growth was barely positive in January and February. If fuel prices hold steady or rise further, we expect real wage and salary growth to turn negative.
Bottom Line: Rapidly Rising Fuel Prices Put Sluggish Economic Growth at Risk.
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So what you're saying is....ooo American Idol is on.
Squirrel!!
Look on the bright side. All the wealthy people who own oil wells here in the USA have a lot more money to spend at their local Hermes store and Porsche dealership.............
Surely that offsets the 99 cent only shoppers who are suffering.....
/sarc off/
so Fargo is the new South Beach?
That's good to know... my Porsche is getting kinda old.
I have a Porsche! FYI, it's pronounced Porsh-aa, not Porsh. Wouldn't be caught dead in Hermes, though.
Considering the fact that it is an Austrian last name it would have to be "Porscha". Having one obviously didn't help you. What are you calling your penis? "duck"?
Long Live Israel!
I laugh at the beastly Goyim and their futile attempts to hedge against our global Zionist monetary empire. Relying on barbarous relics to preserve wealth, little do they know the Gentiles we allow to live in the upcoming decade will need an RFID chip to conduct any transactions.
Let me say this very categorically. You talking monkeys cannot change centuries of planning. We have subverted and control every major economy in this world through, biribery, blackmail, and vicious psychopathy. Your masses of socially engineered mouth breathers will die or submit.
We are the Learned Elders of Zion!
Weak.
flaccid
and clearly circumsized....
The cheapest gas in my neighborhood is $3.49 and it seems its been stuck there for several days.
Cheapest in SF = $4.15
More like $4.50 in SoCal. Oh wait, you mean regular unleaded? OK, $4.20
Silver raid http://silverdoctors.blogspot.com/2012/02/cartel-dumps-1025-million-ounc...
Can any traders get volume data for feb 24th?
Complexity is evil. Can you imagine how easy economics would be to understand if we weren't always trying to beat it? Imagine how much cheaper mogas would be if there weren't gads of price supports, taxes and redistributive policies. Complexity is cover for central bankers and politicians.
I don't understand. I thought no wage growth & higher prices were deflationary.
Yes, you don't understand
I believe that's called stagflation. 1970s redux? If I can have sex without a rubber again, it might be worth it.
Chris Martenson has some real interesting opinions on the fossil fuels. In real terms gas is still cheap. Thought experiment... with only a gallon of gas in your car, drive as far as you can til the engine quits. Push it home. A gallon of gas is worth that many hours of human labor, and still only costs $4. It took 5 billion years to make all of the oil we have in the ground. We will burn through it in 150 years. When people start realizing these things, in terms of fuel cost, you ain't seen nothing yet.
Oil useage will just be a quick blip on the old timescale...
I agree. Fuel, for what it is, is still remarkably inexpensive.
Let's get to 10 to 20 dollars a barrel in today's money and then we're talking.
assuming you mean per gallon.
If you're barrel contains a gallon, you can't have many friends over....
Grammar. The difference between knowing your shit and knowing you're shit.
Assuming,
these hydrocarbon deposits really are rare old dinosaur goo,
Tesla's technology never sees the light of day, and
that Italian guy didn't really build an inexpensive cold fusion plant,
then yes, oil is cheap.
Are you a petroleum salesman, Big (Oil?) Slick?
Well petroleum does not come from dinosaur bones and the Italian guy is a fraud...
Does that narrow it down??
Does that $4 include all the labor and materials used making the car, the tires, the roads, etc.?
Does it include costs of environmental destruction, pollution and oil wars? Does it include the cost of freedoms lost to the "oil"igarchies at home and abroad? Does it include the economic losses and wasteful diversions to the "oil"igopoly? Does it include the general poor health and obesity resultant from habitually riding in a car instead of walking or riding a bike?
Of course there are also side benefits such as petroleum based herbicides and pesticides which can be sprayed over all our food.
I'm not saying it's all bad, but we might stop glorifying oil and start considering alternatives.
it is incredibly cheap for it's labor. Too bad our entire ecnomy and way of life are built on the false premise it will remain that way. Either that or we find billions of slaves. Oh, shit wait.........
What decade was the last increase in real wages?
1970s...before the supply-side won
Now *that* is pithy and succint....
You mean before Nixon took us off the Gold standard.
Well considering there were ~8 years in the '70s after Nixon closed the window, the first 21 months of the '70s must have be monsterous for real wages....
they called it wage-price inflation...; supposed to be "caused" by wages increasing "too fast"; the higher wages were said to "push" the prices higher, as i recall
a rising tide...
Nixon Imposes Wage and Price Controls - The Econ Review ...In a move widely applauded by the public and a fair number of (but by no means all) economists, President Nixon imposed wage and price controls. The 90 day freeze was
Nixon Shock - Wikipedia, the free encyclopediaTo stabilize the economy and combat the 1970 inflation rate of 5.84%, on August 15, 1971, President Nixon imposed a 90-day wage and price freeze, a 10 percent imp [endPaste]
yes, this was the date we went off the gold standard. the MIC + banksters have been at it 4 a while!
can you imagine what it would have been like if not for glass/Steagall?
well BiCheZ, soon, we won't need to use our imaginations!
+1 - Bingo, too! Nixon's closing the gold window at the same time was that part that screwed the foreigners holding dollars that were previously exchangeble for gold. Bringing foreigners at par with US citizens since 1933. And creating a lot of discussions in europe about how to protect the continent from the next currency wars - hence the birth of the euro, the shy girlfriend of the FRN.
I maintain that at some point one of the currency blocs will start to brake. it always happened. and braking is only possible with reserves. and of all reserves (a word only used by central bankers at the moment) two are really important: the USD and of course gold.
all regulations until the sixties had a meaning and a reason - the current derivatives scam is the reason number one why the banksters are on top of this fraud - ban (or regulate harshly) all derivatives that are used only by the financials instead of the real economy
when a bank lends/leverages or hyperleverages , it uses the sovereign's credit - that's you.
as long as they used this credit to "fuel" the economy, nobody complained too much.
but since the deregulations, they fuel also pure bets on the economy.
think about it, bankster X in NY using your credit to make a bet with bankster Y in London using my credit.
who are the winners, who are the losers? hint: it does not even depend on how the bet goes, they net each other. ding ding ding!
next up, further payroll tax cuts, which then become permanent. Which creates a crisis, which means the government must provide for the half that don't pay any taxes, which means those politicians pushing our demise are the real ones that benefit - endless re-elections.
QE to infinity is a bitch.
Want the future? Its a boot stomping a human face. Forever.
If you're going to use a quote, be accurate and give credit.
lol, as if its needs a credit. its obvious that everyone knows it. i guess the point is lost on an 'idiot' though.
If Obama thinks he can explain this away, he's wrong. Gas at $5.00 is a small price to pay to get him out of the WH
Is $6.00 a small price to pay, too?
Regardless, this new pricing environment will work wonders for the transports.
Right, cause the president sets world oil prices.
When the president says "hey fossil fuel industry - DROP DEAD!" it has a non-negligible impact on pricing.
Let's review:
Everything you need? ......UP
Everything you own or earn?......DOWN
That was easy!
Constitutional Review
every law I need - down
every law they own - up
This is difficult
ah, unintended consequences keep sprouting up
whatever happened to those green shoots ballyhooed by Debt Bro and Bite Me?
There's no doubt about the rising fuel prices impacting discretionary spending for the average person. And now with rising grocery prices, it's a double whammy for a lot of people.
The problem of central banks printing money has become blatantly obvious. Unless there's a sudden outbreak of world peace or God forbid, raise of interest rates across many nations, rest assured the pain of rising oil prices will continue. Sadly, the pain has only begun to be felt by the consumer. Wage inflation is non-existant for most (banksters and politicians are excluded, for humanitarian reasons).
The last time oil started climbing north of $100/barrel, the economy and the stock market started to roll over. This time, not sure if the markets and economy will follow expectations to roll over. Central banks are loving their market manipulation abilities too much to let their respective country slip into a recession. Lest of all the US with an election later this year.
Food prices have been rising for years. It hasn't just started. How many food substitutions have people made over the past 5 years. Steak to hamburger to dog food?
Years ago, the easy substitution was chicken for beef. Now, it seems McDonald's cheeseburgers are the substitute food for chicken. Problem is life span shortens with burger munching. Cat food (rancid tuna) may be the next substitute food of choice.
KFC local restaurant:
10 piece meal one month ago: $19.99
10 piece meal today: $21.99
Last time I took ciphering, that's about 10 percent in a month. Any questions?????????????????
actual tuna is cheaper than tuna cat food
We're in a depression. Only inflationary growth is registering. No organic growth. If you sell one tomato for $16 Billion you can say that there's positive GDP. With enough money printing and very little agriculture that could happen. You get the picture
Don't forget about healthcare costs. Rising insurance premiums are almost enough to offset any wage increases.
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...2012...price...check....Kick...The..The...The...Syntax..Greece..Can...ERROR....
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http://www.zerohedge.com/news/its-official-greece-unveils-negative-salary
...pay...to....work..Q.QUE..EU QE..Krugman.... http://www.youtube.com/watch?v=RsqsQVzqiis&feature=related
I was curious about the correlation between gas prices and crude, and the high correlation isn't unexpected but it's even stronger than I thought. I think $150 crude and $5 gas will be the breaking point for a lot of people, and it looks like we'll see those prices this year.
High gas prices are an economic stimulus especially for Japan. Prius sales will go through the roof.
We bought one on 2.13.2012 right before the uptrend began. Got rid of an old civic and needed a replacement commuter car. They had quite a few on the lot and had an incentive, 0% for 60 months or $1000 cash back. Salesman said people start coming in to buy the prius with such little fluctuation in pump prices. I'm sure they've sold everything on their lot by now, especially with the incentive in place until March 5th. I'm sure they get a great premium, too, when the desperate patrons will pay anything to get their gas savings.
At least I got in at a good time. Thing still has half a tank left.
How do they do in foot and a half snow?
aaaand then you'll see what TPTB will make you pay for electricity...
So, ...
what do we get? ...
~ 5.80 - 6 /gal
then, when needed during election, back to 4.35 - 4.80
{al depending on political outcome of 6/gal, of course}
REAL inflation (vastly and deliberately underreported by our government) is having a far greater effect than any attempts to 'stimulate' the ecopnomy. Your savings are losing buying power - turning to dust, your wages buy you less and less...... the very act of creating more and more 'money' without a corresponding increase in 'production' guarantees this.
At least FDR put people to WORK in exchange for aid. Buildings were built, raods constructed, trails cut in parks....... VALUE of some sort - even if it was in the form oa a mural in your local post office - was rfeceived in exchange for the money given out to the unemployed......
Now we throw TRILLIONS at banks to make good their losses and pay people NOT to work, while allowing houses to sit empty while people live in cars and we reward companies for shipping even more jobs oversseas.....
Stop saying so much truth. It's burning the ears of Ben Shalom.
The entire world, or at least the developed world is printing money. Very loose & expansionary monetary policies included with large volume deficit spending. The article is pretty much right. In the exchange rate context, imports of oil will cost more, but the entire globe is flooding the markets with a lot of money. The value of currency goes down by when money is easy to get with real interest rates being ultra negative. Central bankers want to fight unemployment with inflation, when inflation can create a state of high unemployment with high prices. I heard fuel consumption is actually down to decade ago low, or somewhere there. Then there is global production that is actually higher than before, but there is many more dollars, or sovereign money being printed, that is easy to acquire that surpasses the rate of lowering demand, and the output of gasoline production. Remember Bernanke has already told you, he wants to create inflation. He knows how to do it.
If you want to talk about the value of the dollar, why use DXY which leaves out asian currencies along with numerous other negative indicators? I can imagine some interesting graphs that compare DXY to other things. For example, this graph shows DXY mirroring the price of oil until 2010 when it suddenly decouples and plods along in a narrow range as oil prices fluctuate wildly. This appears to illustrate the formerly "independent" currencies becoming increasingly "dependent" as the world's central banks successfully turn the failures of private banks into a worldwide systemic failure linking the dollar to the Euro (primary component of DXY) as they swirl the toilet together.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&instty...
This one appears to show a loose reverse correlation between DXY and the stock market (as do the S&P and NASDAQ graphs). Dollar goes down, stock market goes up. Dollar goes up (relative to euro etc.) market goes down. We need Bill OReilly to help us figure this out.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&instty...
Comparing DLX to gold shows us how useless DLX is for analyzing the value of the dollar. Dollar and Euro alike decline steadily as more paper is printed (or numbers are added to a spreadsheet). DLX may have been useful when we had a "free" market. Now it basically tells us one useful bit of information. Which central bank is "printing" faster?
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&instty...
Diesel equivalent to $8.35 per US gallon in the UK and rising.
well over 60% of that figure is fuel duty and VAT that goes straight to the government, so anyone paying 40% income tax is effectively paying over 100% tax on that part of their earnings that falls into the 40% tax bracket when used to buy petrol or diesel for their car.
Still there's always the thought of cars like this, if you're quick enough and have the cash. Medium to big car that will do over 100 mpg in real conditions (150 mpg claimed)
http://crave.cnet.co.uk/cartech/volvo-v60-plug-in-hybrid-due-in-2012-500...
Well, as a true politician he can now use the opportunity and pay out gas stamps. And the sheeple will love him.
take it or leave it
http://www.financialsense.com/financial-sense-newshour/guest-expert/2012...
My thoughts while reading this sentence from the post...
"While a weaker dollar boosts U.S. exporters, it hurts consumers, who face higher prices for commodities that are produced overseas but are priced in dollars."
Exporters can voice their opinions about the dollar value, with campaign money and lobbyists influence on lawmakers, while consumers who voice their opinions on internet blogs are labeled as terrorists.
A bit OT:
Lots of talk about oil being a tax on the economy but not a word on taxpayers bailing the banks and still getting gouged 20% + on credit cards.
this is exactly what will cause the data to turn bad and another QE when the data is bad...
http://www.jinrongbaike.com/ http://www.cnhedge.com/
The lasting effects of rising energy prices is that transportation companies and grocery stores raise there prices to cover there costs. When gas goes down transportation and grocery prices stay the same and when energy rises again companies have to "cover there costs"... again. And over and over and over.
I'll be so happy when this BS all breaks into a thousand pieces like Humpty Dumpty.