,

Well, going back to the example earlier, the $5 per gallon gas is $2500 per year, and the median household income is about $45K so only about 5.5% of income going to fuel costs. The current rate is about half that, obviously.

I did some checking not too long ago for another reason, but to make a long story short, in 1950, it was about 3.2%, so not all that far off. Of course, during the bad old days of the early 80's this was much higher, as we have documented at length in previous posts.

So, you are right, at the moment, this is still cheap. At twice as high, it will still be a relatively minor expense.





We looked into an example of this awhile back, and found that in the case of "2500 mile" peaches, the fuel component of the cost of the stuff was relatively small, compared to the "financial cost", namely the interest component. I am not at all sure what the right number is, but 50% sounds a little high to me. I will try to unearth this if you are interested.

However, you are quite right in that there will definitely be some upward pressure on the price of everything, and so this little example is pretty simplistic. When this happened during the late 70's and early 80's, peoples' wages tended to rise with prices. A lot of unionized places plus the elderly had this written into the contract. But, as we all know, nowadays, there is always an illegal alien or somebody else ready to take your place rather than have your boss give you more money, so wage growth has been much less than inflation, since 1975 or so.



Correct. Interest rates go up because the holders of capital hate inflation, and they make the rules. They lean on the fed to fight inflation, even if it means pain suffered by the average worker. Some combination of higher energy and higher interest cost will cause people to cut back elsewhere at some point.

But to go back to the 1950 example: In 1950, the average house was $11K, or about 3 times the average family income. Nowadays, the average house is about $200K or about 5 times the average income. The average family food cost was about $747 per year, in 1950, which is 22% of income. Today it is about $4500 per year, which is about 10% of income. in 1950, the personal savings rate was about 10%. Credit cards were not invented until about 1953, so peoples' credit card debt was zero. We do not need to go into too much detail on what is going on with this currently.

So, in 2006 we are blessed with cheap food, and cheap energy, and we have decided to squander our blessing on expensive housing, and furnishing it on credit. The point is, there appears to be plenty of opportunity for people to cut back on consumption in other areas to afford a little more expensive gas and/or food. We have noted previously, however, that any cutback in consumption will cause somebody to be out of a job. So, it's a dilemma.

At some point, people are going to be forced to cut back on their lifestyles, I think. Then we will have our demand destruction. Whether that point is $5 or $10 remains to be seen.

Household Food Costs

Well stated, I agree completely. Until recently a gallon of milk, or even
water, would often cost more than a gallon of gas. That's just not right.
People completely take gas for granted. It's too cheap.

We're blowing through this finite resource like there's no tomorrow, as
well as sqaundering it on frivolous things like big block V-8's and 60 mile
commutes. This fuel is used and needed for so many vital industries and
services for it to be wasted such as we are.

So tax the f*ck out of it I say.

For the past year, the US savings rate has been at or below 0% (zero). Actually that even overstates the true amount of savings - everyday spending has been sustained by borrowing, mostly against one's home.

Therefore any increase in energy expenses will cause spending on something else to be reduced. The increase in economic activity over the last few months is related to increased government spending and lower energy prices. When prices reverse higher again, the economy will be under pressure.

Five dollar gas means around five dollar heating oil. That's going to hurt Joe Sixpack in his McMansion too! The heating and cooling for those monstrosities will hurt a lot. I know a bunch of people who are in debt up to their eyeballs now. The cost of gas, higher interest rates and higher energy costs in general won't be pretty. It won't take much to push them over the edge. $5 gas would do it for sure!

Not only are we squandering oil on the National Traffic Jam, but we are getting nothing from it other than constant frustration from completely dysfunctional system.

I usually don't drive but this evening my wife had me go to a chiropractor. I thought I was giving myself extra time of 25 minutes in rush-hour for a trip that should take 15. Looks like I forgot just how awful the National traffic Jam really is. Pretty soon it became clear that it would take me about 40 minutes and that I was not going to make it on time. I just said fuck it and turned around and went home.

It's nights like tonight where I pine for the liquid transportation fuel crisis. I want this thing to come, I want it to come soon, I want to see the gasoline/driving rationing regime to come in hard, and I want it to kill this idiotic system dead!!!!!:twisted:

Emoticons
Up here in Edmonton Alberta, we pay 92.5 cents/litre (CDN) which is equivalent to about $4.25 US/gal. We have no end of big pickup trucks in the city. The auto dealers sell them as fast as they come in. Even $5.00 per gallon would have little effect on vehicle usage. The only thing which might reverse this trend in Alberta is a major worldwide economic recession which could cripple our oil industry as it did in the 80's.

Inflation is almost entirely caused by the government "running the printing press"....and NOT caused by a rise in oil prices. Contrary to what the mainstream news media likes to report.

Those in power do not want the people to know the truth --- the government causes inflation.

During the oil shocks and inflationary times of the 70's the USA needed a scapegoat. OPEC was a convienent target. The stagflation of the 70's was not caused by the oil price shocks but instead the US gov. debasing it's own currency. When Nixon closed the gold window back in 1971....there was no limit to how many dollars could be printed.

Explain this to me, then: how is it possible that the cost of transport increases, without increasing the price of all transported product? Who is supposed to pay that extra cost, if not consumers? There is only so much loss companies can take before passing the cost to their customers.

I agree that the dollar being devalued is what has caused the price of oil to go up. There is as much of the stuff coming out of the wells as there ever was. More people want it. We aren't the only people willing to pay for it. Historically the price of gasoline has floated around $2 a gallon when today's dollars are adjusted for inflation. It's been around $2.50 before, and as low as $1.50, but we aren't out of the price band that we've become accustomed to over the past 50 years or so. The average person can pay $2.50 a gallon no problem. It's when it gets over $3 that it begins to upset the system.
Cheap gas is the bread and nonstop entertainment is the circus of this empire. Any break in the supply of either of these is a crisis. I think they'll shrink the area that receives the cheap gas and infotainment, but they'll keep it affordable to those in the system. Some of us may start to fall out of the system. We have to be ready for it.

Let's not confuse things. Yes, the dollar has gone down. But even in terms of euros (or any other currency you care to mention) oil has been going up. And the fact that there's more demand for oil isn't related in any direct way with the fall of the dollar.

Note that most of the posts on this topic assume that it is the right or responsibility of government to manage this problem and that is a good idea, i.e., rule from the top. You guys are worse than crack addicts when it comes to your addiction to being taken care of by your substitute mamas.

I can tell you for certain that no matter what problem mother nature creates for manking in the process of controlling our numbers, government will magnify it, not counteract it.

I say that your dependence is setting up most of you for membership on the dieoff list when the dam breaks. If you plan on survival, then your best interest would better be served by making your own plans and taking responsibility for your own future, inspite of what government does to you to make taking care of yourself more difficult.

Absolutely, cutting consumption implies higher unemployment. Cut whatever you think is necessary to make ends meet. It really does not matter: the spending patterns we see are there to have us employed in one way or the other.

Hey, you're right. this is a pretty common theme throughout PO.com. Problem is, "government" and "the market" are both pretty stinking about managing this particular problem. I'm afraid we're going to be on our own this time.



10% less driving translates itself into the closure of 7 auto assembly places, one or two tire plants, and 10% reduction upstream from there--chemicals, plastics, steel, electronics, plus all of the associated convenience stores, insurance salespeople, and other assorted service occupations. Hopefully all of these people will go to work building solar panels or something.

number of auto assembly plants in north america

this guy caused a big correction in the oil stocks as momentum players listened to his forecasts of 50 oil and 5 nat gas back in Feb. That is when alot of momentum players panicked and bailed at 57 hoping the bottom was at 50.
Of course, it did great damage to my oil stocks. But I held. So what happened to his short term bearish call ?? He should just keep his mouth shut, no one is that good at calling short term bottoms.

Anyone who shorts oil at this point is total fool who will soon loose most of their money. Long oil and Gold and short the dollar.