Fuel Prices are the Cause, The Economy is the Effect…
Update: May 9, 2015
I have been saying for a long time that if the price of fuel went down, the economy would recover. Since last fall the price of Brent went down into the 40 dollar area and the price at the pump went as low as $1.60 per gallon in Denver. Seemingly the only thing I can tell that has recovered, is auto and truck sales. Back in 2006 the Greens, blaming the down fall of Detroit, were saying that Detroit would do better if they built what people wanted. Well again, they are building what people want and that’s truck and SUV’s.
I miss calculated though. The economy isn’t recovering, even though a lot of extra dollars are in people’s pockets. The reason I think is, is that the people are saving the extra money, because they do not trust this Government and Wall Street. Already, now, they are pushing the price of fuel up. This week, Brent is up over $65 per barrel. I think the people a right to hang on to their money.
I Originally wrote this in 2008.
I have largely left this topic alone because it tends to make me crazy. But I made the mistake and watched Fox Business this morning, and I have also watched CNBC lately as well, and I listen to the talking heads, the politicians, Republican and Democrats alike, discussing how to get the economy moving up again.
They talk about another stimulus, they talk about tax cuts, which I’m all in favor of. But they never talk about how much money is leaving the economy by way of high fuel prices and the effect it has on companies of all sizes as well as individuals that work by the hour.
Let me illustrate to make this easy to understand. Take a small company that uses service vehicles for instance for 100% of their business, such as, Carpet cleaners and Installers, HVAC Companies, Construction Equipment, the Service Companies that service Construction Equipment, Delivery or Trucking of any kind, Shuttle Buses, and so on and so on. You get the picture. Now lets just say a little company that employs 3 service men, that use 3 service trucks and the owner of the little company works too, traveling around and selling to keep his trucks rolling. The owner of this business nets out of his company, making $100,000.00 per year. Nice little company. To travel around the city or to wherever these 3 service trucks go to do their work, the monthly expense is $2500 for gas at $1.25 per gallon, where it was and where it should be now. But now the price is $3.75 per gallon, 3 times higher, making this little companies monthly fuel bill $7500 per month. This is an increase of $60k per year in fuel expense for this small company. What then does this do to the owners yearly net income? That leaves this hard working guy a measly 40k. The increase in fuel, cut his net 60k. Can you raise prices to recoup? Maybe a little, but you run a risk of making your offering service irrelevant. The cost is to high then. Remember, that all of his customers have the same problem. High fuel price. What this man above is going to have to do, to remain profitable, is to lay-off one or two service men, take one truck himself and work, to try and maintain his net income. And that’s if he is able to maintain his current customer base and if they don’t cut back. Does this all sound familiar?
$60 thousand a year in reduced income for this one person probably would have easily, with money to spare, kept this poor persons house from being foreclosed on. Do you think? This is just one person, one little successful company, ruined. If you times this by 200 million people, the increase in fuel, makes the credit crises and the mortgage crises laughable. The price of fuel started increasing before the mortgage problem.
Now, where is all of this fuel money going? I heard today that the Saudi’s are getting fat and lazier. The oil companies again have record profits. The speculators I think are doing well. I think the Senators, on both sides are getting paid handsomely. Maybe Bush and Obama Too! There has to be a reason nobody is talking about fixing this. Or they don’t want to. I think it’s the later, they like it this way.
But, if fuel prices do not come down to $2.00 or under per gallon, this economy will never recover and the United States will become a third world country. The U.S. is a huge country and depends on cheap fuel. It was built that way. Electric cars may work in Europe, where it’s not to far to go anywhere, but not here. In the big cities it’s 50–60 miles across town to get to work for some. Who ever controls the price of fuel, controls the whole worlds economies. Cause and Effect..
This high price of Gasoline is having a serious, negative, psychological effect on the American people. They are feeling trapped and don’t know why. Yes they are paying for fuel and trying to accept it, but it is making people bitter and angry and they cannot put the two together. Gasoline needs to be back at a $1.40 per gallon. If it got back down, people would feel better. If it don’t, this economy will never recover.