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What Rising Gasoline Prices Do To The Economy
Submitted by Charles Hugh Smith from Of Two Minds
What Rising Gasoline Prices Do to the Economy
Charting gasoline prices against income and GDP provides some interesting results.
Since rapidly rising gasoline prices are in the news, let's look at some charts of gasoline and the economy, courtesy of frequent contributor B.C. These depict income and GDP in a ratio with the price of gasoline, and so they reveal information that is not contained in charts showing only the price of gasoline or GDP.
Here is disposable personal income and the price of gasoline:
When real (inflation-adjusted) wages are stagnant and the price of gasoline is high, as was the case in the late 1970s and the recessionary early 1980s, the ratio is low. If income is stagnant and the cost of gasoline is high, then people have less money to spend on other items and the economy is also stagnant--exactly what occurred after the 1979 Iran Crisis pushed gasoline prices up. (Sound familiar?)
When gasoline is relatively cheap and incomes are rising, then the ratio is high. Thus when oil prices hit bottom and incomes were rising in the late 1990s, then the ratio was peaking.
Look at it now. The ratio spiked in 2009 as oil prices plummeted from $140 per barrel in 2008 to less than $40 by the end of 2009.
Since incomes are stagnant (actually down since the 2007 top) and gasoline is once again on the rise, the ratio is returning to recessionary levels.
Here is GDP and the price of gasoline:
As B.C. noted: "These charts show that wages, incomes, and GDP have fallen dramatically in relation to the increase in the price of gasoline (and energy in general) since the secular peak in the late '90s to early '00s." The ratio is back to the recessionary levels of 1990 and 2008 and not far above the "oil shock" stagflation of the 1970s.
If the government portion of GDP is removed, what's left is private GDP to gasoline prices:
This chart shows the secular decline in the private economy from the late 60s into the late 1980s, and the expansion of the 1990s. The ratio once again began a secular decline from its peak in the Internet boom years of 1999-2000, and then fell off a cliff in the 2008-9 recession.
Though it has recovered a bit, the ratio suggests that in terms of private (non-government) GDP and the price of gasoline, the private-sector economy is plumbing depths that are unprecedented in last 45 years. (The "oil shock" stagflationary 1970s look resilient by comparison, and the nation wasn't borrowing 10% of its GDP every year, either.)
Yes, the Federal government can cover up the damage by borrowing 10% of GDP each and every year ($1.5 trillion, and don't forget to add in the off-budget "supplementary appropriations"), and the Federal Reserve can add trillions in quantitative easing stimulus, but even adding $8 trillion of borrowed/printed money to the economy over the past four years has had remarkably little effect on the private-sector economy. That does not bode well for the "recovery."
And for those stapped for time, here is what we posted exactly a year ago:
The Impact Of Surging Oil Prices On The US Consumer: A Primer
A quick talking point: assuming a pure crowding out, the effective $700 tax on consumers reduces GDP by 0.5% (disclosure, the sensitivity is higher than some on the street who use 2.5-2.75 cents for every $1 in oil).
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And, lest we all forget, there WILL be military action against Iran in the near future. Especially on reports like this:
Iran has sharply increased production of enriched uranium over the last 4 months, according the IAEA, which says it has "serious concerns" over the military dimension of the county's nuclear work.
Anyone who doesn't think Iran will get the shit kicked out of it very soon is delusional. Then watch the gas prices skyrocket.
Right, Greek drama and all this will just be irrelevant one morning as we and Israel attack Iran and Hezbolah sleeper cells here get activated and blow up the cities theyre operating in.
We would only be so lucky. Bring on the $250/barrel oil. People in this country need to get off their fat asses and start walking anyways. Maybe some of these jackasses who drive 3 mpg trucks on the highway to their apartment in the city will buy a fucking car and actually save money, but I wouldn't hold my breath.
Either way I'm sure the Uncle Sam will institute the "Gasoline Available Year (GAY)" act for FY2012 to "help those in need" of help buying gasoline so they can drive their fat asses to jobs they will eventually lose. If that doesn't work, we can make the "Gasoline Available Year Round (GAYR)" act just to ensure that everyone drives a car that's as inefficient fuel wise as possible.
Personally I'm cool with gasoline being a luxury, not a necessity. Maybe people will actually listen to shit Henry Ford said about fuel and the combustion engine instead of just whining about the price.
/rant
Walking where, to the pharmacy to pick up their anti depressant prescriptions, or to the corner store for some crack rocks and a 40?
Whatever....'fixing America thru high gas prices' lol yea sure.
lol I know right? How ridiculous was that post anyway. Apparently friday's off to a rough start on my side of the pond.
you do know at 250 a barrel inflation would go nuts. You really want to pay 10 bucks for a few bananas, or a few carrots? Everything in this country is TRUCKED around. AT a certain price, farmers let shit rot in their fields because it cost too much to pick and truck. Truckers dont even bother since they make no money driving.
I really wish people would think before they say stupid shit.
Yep. I was being sarcastic.
Ultimately Uncle Sugar will have to push through the "Gasoline Available, Yet Estimations Surely Temporary" (GAYEST) Act in the end just to keep the wolves in sheeple's clothing at bay...
Henry Ford actually originally designed his cars to run on alchohol not gasoline. I have everything ready to start making my own alchohol fuel just in case the SHTF.
If that much SHTF, I'm going to use my alcohol-making resources to make drink, not fuel @_@
That's the beauty of it - you can put it in your car or in your glass.
As long as you can handle the massive jump in food prices OK. It isnt a luxury for the people who grow it. It would be good for me as I will be selling a fair bit at the farmers markets this year and I would love to sell beans and tomatos at $3-4/pound or better and get $10 for watermelons but the urban/suburban zombies are gonna scream. Heck, if it goes up much more Im certainly gonna go outside and plant more of the early stuff I already have in the ground.
Im on board, but I dont think those who cant produce their own food can deal with it. However, the "Yee-ha!"'s from rural America will be audible. A year or two would provide some very nice wealth redistribution from the unproductive population centers.
I love what you do, but think you need to open your eyes.
Why do you think they passed the USDA law back in '08 using a lame duck Congress and President?
To make sure people like you quit killing people with your natural products.
It is now technically illegal to give your neighbor a tomato unless you are compliant in registration and licensure. This is not a joke.
Scary things are headed this way, I hope not as scary as the laws currently allow.
Good luck to you.
Thanks. You are correct to a point, but there are some rather stark regional differences to consider. Im only a small grower right now, but most of what I expect to be a rather meagre income this year will come from produce sales.
Where I live state and local law enforcement agencies are most certainly NOT on board with federal agendas, nor is the culture. Cops here are friendly and part of the local community unlike the large urban areas. The farmers market in my town only requires that you show up- no fees, no government anything but a piece of paper from the county extension office which is free and simple to get by only asking. There are small nominal fees at some of the others, and nobody would be dumb enough to screw with the raw milk dairy farmer who sells a heckuva lot to the locals on the honor system (you walk in, get it out of the cooler, drop money in a box, and thats it. He never gets shorted). Your average government enforcers would have a helluva time getting out in one piece if they showed up and started throwing weight around, they would need a platoon of Marines and as a large percentage of men here are vets and the rest are all shooting enthusiasts even that could get dicey.
The rebel flag still flies in two of the four towns in my county and many vehicles and houses, resistance to the federal government is a time honored tradition here. It is the norm, not the exception. Outside of some northern retiree transplants at one of the lakeside communities that are milked for tax revenue, nobody would see or hear anything at all if something like that went ugly. Lots of land, lots of forests, mountains, and lots of places to hide a body and vehicle if you know what I mean.
Passing a law is one thing, enforcing it in the southern hinterlands where the population has universally despised them for generations is another. Though we live in the same country, I suspect mine is a very different world from say a place like California or Illinois where bureaucrats rule.
Do you really believe that $250 oil will only affect gas prices?
Or was that just a brain fart?
Nah, I don't want $250 oil. I was just being sarcastic trying to paint it in a different light.
Will... tread... more... softly... :D
I am just a working stiff. Fuck them, they need to make what I do and head to the grocery store or the fuel pumps. The problem is most of them never go to the gas station they have some working stiff doing it for them. I hate to rant but this is getting old.
I feel like buying a large sailboat cruise offshore get close to one the those rich shits and use their wi-fi to read ZH then head back out to go fishing. Come back every now and then and buy some produce and veggis solved. But then they would probably sic the Coast Gaurd on me for violating some fricking fishing treaty!
Im working right now to buy a friends trimaran in the Bahamas, he needs the cash and I think I can get it for a song.
I don't even want to think how much regular unleaded is right now at the fuel docks over there, or even in fla.
If you do some looking not so bad, between $3.42 and $4.69 in the Bahamas.
http://marinefuel.com/marina-fuel-prices-florida-bahamas-virgin-islands/
A cat has a real efficient hull shape and most just sip fuel.
Last trip from NYC to St Lucia (via Bermuda) and back burned a total of 600 gal (sailed most of the time, but despite having wind gen and solar you still have to run the engine to top off your batteries for refrig and auto pilot every so often) but we are a mono haul, (I like my offshore boats to be more "stable" with the mast pointing up to the sky!!!!). but the cats are real nice to live aboard and gunk hole in the Bahamas (OMG I wish I were there right now)!!!! ;)
Blow boats are the way to go if the fuel budget is tight and you know how to sail.
What? "I've got a F-150" is no longer working as a pick-up line?
Anyone catch this today both on CNBC and Bloomberg:
U.S. Growth Slowing, Not Reviving
ECRI's Lakshman Achuthan joined Bloomberg Surveillance to point out that U.S. economic growth has actually slowed in recent months, contrary to the consensus view.
CNBC crew was dumbfounded as Lakshman kept saying "I'm giving you facts here, that's what we base this recession call on, facts."
Facts to CNBC are based upon what comes out of the oracles mouth and the chairsatans ass
Wash and repeat
My economic model predicts the US will slip back into recession in April/May 2012.
My economic model see collapse of the Walmart first.
Walmart at the world level is three times bigger than its closest competitor; that's how big it is. If its economic model goes wrong; either because chinese products it imports lose appeal or because its retail mix, location/product slate/price competitiveness in bottm range, loses edge, it will be a swing of major proportions. Like GM going under, or Exxon, or Aapl. Huge!
and yet demand in the US is so low for gas, that refineries are being shuttered up. Sunoco in te NE is closing like 50% of their refineries. something is up. The fix is in, aint it always.
Why don't you look at the crack spreads for the light sweet crude those North Eastern oil dinosaurs require??
The only fix is that the owners are trying to fix their income and balance statements.... It's called free market capitalism...Deal with it...
US refineries operating at 82% capacity to keep supplies tight.
Did you ever think that there was too much capacity for the amount of oil available and demanded by the US market??
It's a global market now. Plus the world has caught on to our little scam and will no longer sell oil for PAPER. Plus have you ever heard of FRACKING. What that means is it FRACKING costs a drum of oil for every FRACKING drum of oilyou get out. In other words, we're in deep FRACKING shit.
It will get ugly when you fill up your tank and a hundred dollar bill is Poof! Not too far off.
...especially if that tank is the one in yer John Deere LT165.
Don't worry, the consumer will be fine:
Reduce savings - NOPE, done that
Raid 401K - NOPE done that
Reduce driving miles - NOPE done that
Cut back on food - NOPE done that
Postpone Home Improvement Projects - NOPE done that
Refinance - NOPE done that/can't
Work second job - Nope already hold 3 jobs
Ride bike to work - Nope too fat / don't have job.
See...NO PROBLEM AT ALL!!!1
yep, last but not least, pile 3 generations of families into one home. Does wonders for the housing markets.
I was a kid during the 70's gas crisis. A few of the older guys in my neighborhood would pay me and a couple of friends to siphon gas from cars at night for them. It was a lucrative business as a kid (15-20 bucks a night).
I can easily see that making a comeback.
Looks like all that saber rattling out of the ME has acheived it's goal of raising the price of oil...
Imagine what it will do once the missiles and bullets start flying...
and yet another spike. Oil now 109.475.
JH Kunstler +1 Southern NASCAR culture -1
City Based manufactures +1 NASCAR Plantation Right to Work States -1
Cali -1
Chicago +1
There are winners and losers with high gas prices.
$5/gal. or more is exactly what the administration wants... they need a new crisis to move their agenda forward.
01.) Allows them to spark off a war in the Middle East - blaming prices on volatile nations like Iran to gain public support. This will further spike oil prices and bring about a faster collapse of our economy.
02.) Allows them to gain more support from the sheeple painfully suffering due to high gas prices so they can blow more borrowed money on green energy endeavors. They don't really want to accomplish any success with these ventures, it's merely a ploy to sink our currency further.
03.) Allows them to introduce more social welfare programs and further crush the concept of commercialism.
All these will aid the administration to an ultimate goal of a crisis worthy of suspending our rights, nullifying the presidential race and allowing the central banking cartel to revolutionize our nation without a shot fired.
You're absolutely right. Time to make more beer for barter.
This is importantant enough to repeat: Considering you could but a gallon of gasoline in 1960 for a shiney silver quarter (in the US) and now a shiney silver quarter is worth more than a gallon of gasoline today, then the conclusion is that gasoline's value has depreciated relative to the value of a shiney silver quarter, right?
There really isn't any "inflation," only a devaluation of the value of a dollar thanks to the FED's unlimited release of Federal Reserve Notes thanks to the profligate spending habits of Government idiots (not to mention the continuous bailouts of the world's banking cabal).
I don't have a car I don't give a rat's ass what gasoline costs.
All these car people can eat shit and die.
I'll take my 'gas money' and buy gold, fuck you.
Wow Steve, smug in your "gas-free" ness.
Apparently, you grow all your own food from seeds you harvest, make leather from your cows and use your transponder to teleport all your foreign made goods into your home.
Awesome.
Our ENTIRE economy is contingent on cheap gas (and other energy), we are watching the end of that era.
Which will end our standard of living as we know it. Doesn't matter if you don't use a car, gasoline gets everything to your home and plate.
Whether you have gold, or not.
You're wrong bitch. The dude's right. Waste your time in the rat race and see where it gets you. I'm putting my money in GOLD as well. Like he said, FUCK YOU
Good one, just one point: the disposable income in the first chart isn't adjusted for population. Gas is indeed cheaper now relative to per capita disposable income than it was in 1980, but not that much cheaper.
You'll know it's ugly when your local filling station is completely out of gas. Remember 1979? Or odd-even gas-buying days? Multi-block long lines of cars at the few stations that had fuel. And when you got to the pump you could only pump a few gallons of gas. I can see the SUV's filling up with their quota, only to get back in line so they don't run out, but not having enough gas to make it back to the pump. I can't wait!! Bring it...
Nothing like a shortage to bring out the best in people.
our whole economy is being controlled bij banksters. Private and central banks.
Better ti ride the waves of the market and get a few dollars out of it. I use the contract for difference for that. I also own gold and silver.
Thanks again to Gomie on the right call. ECRI are just about the only ones in the room that get it at this point. I bet they haven't priced in 4-5 gas yet either.
Would love to see the CNBC faces after that call.
State and Federal gasoline and diesel taxes are about 45 cents and 50 cents, respectively. Cancel the taxes and print more money. Good Election Year strategy. Post-election strategy unknown.
Article "almost-junked" (2 stars) because it not only ignores REAL wealth, but outrightly calls NOMINAL weatlh "REAL", which is double-misleading.
Here's my proposal: Take "wealth/income/whatever" in $..... then measure how many 1) metals 2) commodities 3) stocks, this buys. Take the average of all three results..... and be affraid of publishing the horrible reality.
Our malevolent goverment has purposely intentionally killed the economy permanently so that they can foreclose on and reposess every last home, transfering the wealth of america to the filthy filthy filthy fucking rich. Oh shit... there's a black helicopter in my front yard...
Maybe, just maybe, if the majority of people stopped driving monster trucks (that should be classified as commercial vehicles NOT suv's) then domestic and Mex/Can supply would be enough. But NOOOOOO! the freedom loving, gun waving, church going, holier than thou masses see petroleum gluttony as something enshrined in the constitution. All men are created equal and a V8 engine in every pot. Maybe just maybe if Americans could have some outdoor fun without an internal combustion engine attached there would be enouth of US/Mex/Can oil to serve our needs. But NOOOOOO! Equating petroleum gluttony with freedom, you get what you deserve.
Gave you a 'plus' simply for a little courage and understanding. You know the score and my humble advice - move along, get away from this subject and begin exploring alternatives for yourself and your loved ones. All human beings, unfortunately and especially to the sociopaths running things today, aren't equal and are increasingly becoming more and more unequal. There's a fulcrum point where people will become completely meaningless to these monsters and when that happens it would be to your advantage to be about as far away from the monsters as possible, physically, emotionally, politically, psychologically and spiritually (You already know what their god is all about). Good luck - you're halfway there already.
And I gave you a minus for being a manbag toting urban twit with the mental horsepower of a lawnmower.
It takes energy to produce food, you milquetoast. I cant haul what I need to coax food from the earth with flipping Prius. Though I will say, the benefit of seeing your sort starve to death might be a benefit to rocketing fuel costs.
Tell ya what Sparky- you bring your Volt to the dairy farm out my way, we'll dump a few thousand pounds of composted manure on it, and you can haul it to my plots to show poor ol' ignernt me how its done, eh?
Gasoline= My ( 50-50% weight bias) on the " nuremberg curcuit". Oh and my 458 Italia.
I wonder how much of the price increase is due to our "best friend" Israel's lobby AIPAC authoring sanctions that prevent Iran from exporting oil?
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