As Gas Prices Rise, The Economic Recovery Could Be In Jeopardy
Last week, the threat of a Federal Government shutdown hovered over the economy like a dark nimbus cloud. The writing was on the wall, that a shutdown wouldn't just affect whether you get into a national park or not, it would put a lot of people out of work. Alas, President Obama and John Boehner managed to hash out a last-minute deal, which staved off the first government shutdown in 16 years.
The average price for a gallon of gas as of today is $3.79, which is roughly 90 cents more than a year ago today. This comes at a time when it appeared the economy was finally gaining some good momentum, after adding 216,000 jobs in March.
Purchasing gas is unavoidable. Most of us need to commute heavy distances to our jobs. Police and fire departments need it as well. Big corporations need it. And, small business owners need it. Oil makes the world go around. And, as gas prices go up, consumers have less expendable money and cut back in response. And, as prices of goods go up, consumers have even less money to spend.
This form of inflation impacts the economy on every level. Consider someone who normally spends $25-30 per week in gas during normal times. This is a best-case scenario where they get 30 miles per gallon out of a vehicle and drive 300 miles per week. They are now spending and extra $10 per week, which takes $40 out of their discretionary spending per month. Now, multiply that number times 130 million - the number of people in the workforce who aren’t rich.
Consider families who normally take the kids out to a Flyers game or to the movies on a Friday night. Many of these activities go out the window when they feel the pain at the pump.
Unrest in Egypt, Libya, Syria, and just about everywhere else in the Middle East has been to blame. While that is part of it - experts suggest the fallen value of the U.S. Dollar is a key underlining reason for rising fuel prices. Oil is priced globally in U.S. dollars and as the value of the dollar goes down, oil prices go up.
According to the Financial Times, 2011 could be a rough year thanks to higher oil prices and fiscal tightening. At this point it appears consumers haven't pulled back just yet, but the tipping point could come soon.
Remember back in 2008 when we experienced the last oil shock. Prices reached record highs and peaked in the summertime before the Economic Collapse of 2008 in August.
Now as we enter year three of the economic recovery, the U.S. could face another recession thanks to the 2011 Oil Surge.
Contact Dennis Bakay at firstname.lastname@example.org
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