I am happy that gas prices have dropped, but they will climb again if we start to demmand more again. My tank has been on full for two weeks now. I enjoy staying close to home, and we all need to change the way we do things. As far as housing goes, the industry built expensive homes with no entry-level homes for new buyers to move into. The homes were too expensive, so the banks lowered standards and downpayments.
The time of EXCESSIVE spending and the “Starbucks” mentality has come to an end.
Wake up and smell the home-made cup of coffee. IT SMELLS GOOD AFTERALL!
Lower gas prices are helping, and really what the government should be doing is CAPPING the price at the pump, full on price control, cap it at say $3.00 I know that seems high, but it will keep costs down as people will drive less and run down the demand.
And to whoeever said it cost $600 a month for the average worker to fill their tank, then maybe that average worker shouldn’t drive a hummer he can’t afford that he wants the government to bail him out on!
The prices of food and other items became as much as 33% higher for some items that I purchase during the spike in gas prices. The prices have NOT dropped now that gas is lower- businesses pass on any addtl expense to consumers, but they do NOT turn around and pass on their savings to their customers. Greed is the driving factor in business today. It is taking a recession or depression to bring prices back in line. ALL Americans should tighten their belts now and keep them tight until prices drop to pre-gas-hike levels. Sad to say we have to plunge ourselves into a deep recession in order to force business to bring their prices in line with the current market conditions.
I don’t see how cheaper gas will make a marked or immediate difference. The damage was done by other factors over a long period of time.
We will all become SAVERS, not BORROWERS, for a long, long time.
The economy will get worse for a while. What we have seen so far are just the manifestations of the Financial aspects of this sad story. The Main Street pain is starting, not ending.
There is a post by Jay Aren which explains (under the so-called Austrian School of Economics) why the slowdown may last for a while. Please see http://blog.mises.org/archives/008983.asp
“My understanding of the anti-savings glut argument is this:
1. The Fed lowered interest rates below the natural rate
2. With the “extra” dollars, U.S. consumers went on a buying spree that included significant purchases of Chinese goods
3. In addition, U.S. investors poured money into China
4. To offset these inflows of dollars in order to keep their currency cheap relative to the dollar, the Chinese gov’t printed [phony, newly-printed] RMB to purchase dollars from Chinese businesses.
5. The Chinese gov’t then used these dollars to buy U.S. bonds, thus in a round-about way helping the U.S. Fed in its low interest rate policy.”
[End of Jay Aren quote.]
I think Jay Aren has very succinctly and very well summarized the problem.
We are likely to have a very slow recovery (and even some further dips) because this description from Jay Aren seems to be the largest underlying systemic problem that has led us to our current mess.
And since this past practice is clearly not sustainable into the future, we are not likely to have another similar economy-generating practice take its place — at least not one that generates “wealth” at the same “high” level. Because this practice depends on more and more assumption of Debt. In present circumstances, that does not seem to be a realistic ‘assumption’.
The Chinese authorities only use — for buying U.S. Treasury bonds — those U.S. currency earnings that their own exporting companies have converted to Chinese (local) currency.
Of course the really, really bad thing — is that the Chinese authorities are using newly-printed “artificially-injected” Chinese fiat-money to buy the U.S. currency from the exporters.
Would they not do that extraneous money-printing, then the harm would never occur.
The Chinese are smart at economics — so you might think they would have learned from the Japanese debacle of the late 1980-s.
Many Chinese exporters would frequently need at least some U.S. and other currencies for purchasing raw materials (and some components and finished goods) from offshore, so they cannot be expected to turn ALL such earned U.S. and other foreign monies over to China’s CB.
These exporters need local (Chinese) currency for their many local expenses, payrolls, and services they buy locally. And with which they pay their taxes.
To get these latter needed Chinese-currency amounts, they turn over their “extra” foreign monies to their CB . And which now Chinese CB-held foreign monies eventually find their way back to the U.S. to be used to purchase American Treasury Bonds.
As a ‘ktibuk’ pointed out on that site, most, if not all exporting countries were doing this. China knew that Japan has been similarly managing its own currency for decades.
This process is very harmful. That harm is hard to overestimate.
When China — as an example from the recent past (and Japan in the latter part of the 1980-s) — over-stimulates its own economy with artificial injections of fiat money, it harms itself. Not immediately, but as Austrian thinking has established, ALWAYS eventually.
As someone named Inquisitor wrote “…this policy of China’s is complementary to the Fed’s own monetary expansion policies”.
We all saw where the easy-money policy followed by Japan’s CB (Central Bank) in the 1980-s led. For awhile, we all thought that the Japanese were gods. Their businesses could do no wrong. They were taking over the world. They were buying all the movie studios along with Rockefeller Centre. For heaven’s sake, the land just under the Emperor’s palace was supposedly worth more than all of California! Tokyo was worth more than all of America!
Today, we all know this was Bubblenomics run amuck. Much of it thanks to Japan’s policy of expanding its own money supply artificially exactly like the Chinese are doing. The Japanese have been paying for this foolhardiness ever since.
This was madness back then. But what choice did the Japanese have? Could they let their currency rise? That would cause the YEN to appreciate against the U.S. dollar. That might price them out of their largest market. That might even make it more difficult to export automobiles to the American domestic market. Maybe the American Big 3 would still really BE the BIG 3!
http://findarticles.com/p/articles/mi_m1282/is_n23_v41/ai_8185735
As others above have pointed out, the other thing that this process facilitates (and for sure, makes it look like there is a REAL SAVINGS GLUT coming from somewhere) is the addiction to debt in America. Our government and businesses and consumers have the best of all worlds (seemingly).
We borrow, so therefore someone MUST be lending, right?
Well, yes. It is us and our FED. Once the merry-go-round starts up, it is hard to get off.
We buy from China, as an example. (We can use Arab oil money for this example also.) They recycle some of the money back to our Treasuries. Our interest rates stay low. We borrow more, and buy more. And so forth.
The madness only stops when the ball bearings on the merry-go-round get red-hot and melt and seize up, because we have been running the system non-stop for so long. That is an analogy, but I think we all can see that at some point, someone will not be as inclined to recycle their U.S. money into just Treasury bonds. They will buy commodities, gold, companies, stocks, derivatives, and bonds, and OTHER currencies.
But there is also financial exhaustion on our side. Our consumers and institutions start to avoid taking on more debt, because there is less bang for the (next borrowed) buck.
When this ‘revulsion’ sets in, it does so suddenly and seemingly everywhere at once. It is not just a credit crunch from the side that provides the credit. The revulsion and repudiation comes also from the side that has been until now, the borrower.
Check out the fact that our consumers all over the Western (developed) world will buy far less on credit this holiday season than for many prior holiday seasons. That will be the confirmation of the end of this ride we have all been on for so, so, TOO long. A ride that is no longer viable. It will take at least 10 years to fix our merry-go-round, I am afraid.
If anything I am even driving less. NOW is the time we get off of oil once and for all. I am SAVING all the extra money and that’s what we should all do.
China has a net savings rate of 51%, OPEC is taking our money for oil. Executives are making millions while we all pick up the tab. Let’s wake up and show them that USA is FOR THE PEOPLE BY THE PEOPLE.
P.S. Walk – it’s healthy too.
I have not changed my spending habits except for spending even less since gas prices went down. It wasn’t a very long “hurray” when prices dropped dramatically. I did some math and that only leaves me with about another 100-150 bucks a month. Since the stock market has tanked and home prices are still declining, I can’t see beginning to spend more money again. I am afraid of tomorrow and worse yet, next week. I never know if I am going to be out of a job. My mind just isn’t on the oil companies now. Another beast as taken its place. I am also not letting myself get used to these gas prices, because the will rise, and they will rise fast.
When gas passed $3 per gallon in the summer of 2006 I decided to move closer to the city. I rented an apartment right next to work for a year and walked EVERYDAY. Recently, because housing prices have gotten sort-of affordable, I purchased a home a short 7 minute bus ride from the subway. Now I drive me car 10 miles a week, total, just to run errands. I’m loving it and I never want to go back to 1 hour on-way commutes in horrible traffic.
I encourage everyone to GIVE up on gasoline powered automobiles. It’s time for a new way of life…
You got this one right, Paul! Good job.
Cheaper gas now means we can (should?) add to savings which we WILL spend on expensive gas in the future.
Paul, how about an article or TEN on alternatives to consumerism? I realize this is unamerican thinking, but then you just might prove to be a leader for us.
Frugal used to be a good word – that is before the advent of “for everything else there’s Master Card.”
We all know this is not going to last, but let’s enjoy it. I paid $1.78 this morning and loved every minute of it. I topped off, even though I did not need gas, how can you pass up that price? We’re thrifty savers already with no debt, so the few extra bucks are going to be spent at the movies or an extra night dining out. We would all trade these lower gas prices for a better housing market, a lower unemployment rate or more stable financial sector.
Your comment that 2 dollar gas is “better” than 4 dollar gas needs clarification. Better in what way? If we had had 4 dollar gas for the last twenty or so years, we would not be as dependent on foreign energy, our air would not be as filthy, our public transportation infrastructure would be the envy of the industrialized world, and Detroit would have switched to energy-saving cars decades ago.
The government should have instituted a gas tax when gas was at 4 dollars which would in effect have KEPT the price at 4 dollars regardless of the underlying price of gasoline. The increasing tax could have paid for public transportation and alternative energy development.
The Europeans and Japanese discovered this lesson ages ago.
I saw a great political cartoon a few weeks ago. A husband was coming in the door and said to his wife, “Honey. The good news is that gas prices are lower. The bad news is that the car has been repossessed.”
That pretty much sums up the current economic situation for most people. Lower gas prices are not going to help at this point. They are too little, too late.
I’m continuing my driving habits as if gas were still $4.25/gallon. With the greed exhibited by OPEC this summer, I have no desire to buy their product. I know gas prices will go back up. I find it funny how their idea of a “fair” price for oil has gone from $28/barrel to $100/barrel.
I have no problems with a vendor wanting a “fair” price for their product, but oil is a basic, raw commodity and one that can be replaced. When vendors strong arm me, like OPEC did this summer, I drop them on the next contract renewal. Or, in this case, the next vehicle purchase.
Relying on OPEC to supply sufficient quantities of oil to the market is extremely risky. While the actual cost is currently low, the real cost of oil use is very high when you add the risk of cost variation to its price. You have no idea when they will decide to start using it as a political weapon again. Oil at $147/barrel has been a big trigger in this recession/depression; many businesses suddenly found operations impossible. When an average worker is spending $600+/mo on fuel just to get to work, something is wrong. I bought telecommuting equipment to help workers and found that it worked great for back office work. I intend to continue using the telecommuting equipment.
Personally, I need to rely on an energy source with a stable supply and price, even if it is more expensive at this particular moment. 1/4 of my revenue was suddenly going out the door in fuel this past summer and sucked all of my operational cash. I thought OPEC had learned their lesson in the 1970’s; it took them 30 years to recover from that debacle and they blew demand for their product in 3 months.
Thankfully, today, it’s much, much easier to replace their fuel.
I’m saving more to get ready for the brand spanking new gas tax the Gov is planning on implementing. I’ll need the savings to pay for it.
Like the trigger of a gun, high gas prices launched the bullet of the housing collapse, and suddenly putting it back doesn’t change what has happened.
I’ve heard quite a bit from the financial news guys (ie – Larry Kudlow, etc) about what a boon the falling gas prices are for consumers. The problem is that it’s only back to where it was 3 years ago…..but in the meantime, the prices of everything else (food, clothes, property taxes) have gone up significantly, while at the same time jobs are being lost, income is stagnant, and house values & investments have taken a nosedive. Am I happy that gas prices have come down? Sure. Does it really make a dent in the big picture? Not much.
I am still not buying any gallon of gas I can avoid.
I notice that our so called experts seem to have a serious (to the point of dangerous) problem with confusing symptoms with causes. The biggest problems are NOT the drop in housing prices or the drop in the stock market value. The **problems** are/were things like excessive lending without prudence, over building, overspending on junk, too much debt by individuals and government, blah blah.
And I totally agree with Paul today in the assessments that people going back to frivolous spending wont happen (and shouldn’t happen) as a short term result of lower gas prices.
Because, guess what? The American consumer ran out of money.
I’m not spending any more now then I did in the fall of 2005 when we got our first taste of higher oil prices. As child of the 70’s with fuel lines and all is when I started living with in my means. Only paying for what I can afford.
Lower gas prices by themsleves will not save the economy. The finacial sector and the overall sense of fear will need to pass as well. What borught us to this point was unbridled greed in all kinds of sectors of the economy especially financials (that did not contribute by bundling and passing papaer) and energy. Once things bottom and the will, there will be positve growth that is steady and responsible, but eventually greed will take over again and we’ll repeat the same cycle that has gone one since the dawn of time. Of everyone needing to have more then the other guy.
Lower gas prices are a relief, I’m saving a little more. However, once the economy starts to recover, and DEMAND increases, the price of oil is likely to shoot right back up! So don’t get too comfy!
Cheaper gas has not changed my driving habits or spending habits. However i will say that i am getting what bills i have paid off quicker due to the fact that im saving more money. Im taking this time to focus on the important thing and thats making sure first and foremost that my bills are paid, my car stays serviced so i can get to and from work to earn a living, and if i want to have fun im out riding my bike or hiking taking in the az sights….the worst thing any of us could do is go back to how we were with ridiculous spending on things just cause we have a little more coin in our pockets.
Reduced gasoline prices this fall have saved me some money, but I’m not traveling more because of it. In fact, I’m still trying to cut back on flying and driving. Nor am I spending more on other things; save those dollars.
We are in a very dangerous spot, so don’t be lulled into a false sense of security. This is only a temporary reprieve. The oil producers (like OPEC) and speculators (like Goldman) will try to drive the price over $5 per gallon this coming summer, like they drove it over $4 this past summer and over $3 the summer before that. Some day, they’ll try to hit $10 per gallon; if we don’t take actions now, we’ll have to just pay up. So …
When you replace your car, get a small engine, high mpg vehicle, preferably flex-fuel, so you can switch to ethanol when gasoline prices spike. Or, check out the new clean diesels, which run great on biodiesel (no oil at all).
Maybe a bit off topic, but still this CNN site. Notice the “Retired from GM: One worker’s fears” link. What gives. This guy is 54, retired, and looks in great health. With his 33 years to GM and if the current pension/health care deals stay the same, he may very well live in retirement longer than he worked.
Now I don’t necessarily blame this individual as he was part of a union that got the package, but how can this largess be supported? How were the companies manhandled by the unions that way. Did they figure they’d just push it off to the taxpayers in the long run anyway?
Now I don’t know this guy’s personal spending/saving habits while he worked at GM, but if he lived his life in the moment without savings or forward thinking and only thinking of that fat GM pension forever I feel he was irresponsible. I really don’t know the answer to this.
TO OPEC AND OTHER OIL PRODUCING NATIONS: Not at all…I lost my faith in the commodities market. Even though the pain is less I still fear the very real possibility it could go right back up. With this in mind I’m still driving less and when it comes time to buy another vehicle it will be a sedan and not an SUV, even if gas goes to 99 cents. OPEC you can’t be trusted to make rational business decisions anymore.
My spending habits haven’t changed at all as a result of lower gas prices. $4 gas caused me to change my behavior and cut back on my driving pretty significantly, and I’m still doing that cut back, so I’m not seeing significantly more money in my pocket due to cheaper gas.
-
This 35-mph vehicle got lots of attention for GM - just not the right kind. More -
Not surprisingly, there weren't many takers for these pricey tickets. More -
British Airways asks 40,000 employees to work for free. Few take the company up on the offer. More -
Tropicana drinkers rebelled against the juice maker's $35-million 'generic' branding. More -
A credit card reform bill comes with a bonus -- guns in national parks. More -
KFC offers coupons for free chicken, only to rescind the offer when demand is too high. Outrage ensues. More
Well, in Hickory NC, gas prices are at around 1.69 a gallon… so it now cost me 16 dollars to fill up my Toyota Scion, instead of the 40 dollars it was costing a month or so ago. Now, the downside… gas prices aren’t doing anything to bring back the jobs they cost. Let me explain that, many in the shipping industry, etc laid off people, or slowed down, due to gas prices of 5 dollars a gallon or more. So, those shops closed up, and those jobs are now gone forever. Nothing new is coming around, because quite frankly we all know that once hits a High, it seldom stays lower than that high for long. Right now, Opec is already talking about cutting production, etc… so no one wants to start up a company based off of today’s *low* gas prices, to see it jump back up to 5 dollars a gallon next month, or after Obama gets in the white house. Also, a couple of senators are talking about putting a 1 or 2 dollar per gallon federal tax on gas, to pay for the wall street / bank buy out. So, don’t expect gas to be low in price for long. As always, the American people will pick up the tab for these fat cats… one way or the other, the Gas companies already know we’ll pay 5 bucks a gallon, it won’t be long till it’s back there. Mark my words on that. Oh yeah, that 30 dollars *extra* that I’m not pouring in my tank, just vanished in the stock market…30 bucks isn’t going to bring back someone’s life savings in a 401k. Just a dose of reality for you all.