Gas up your car with your HELOC
August 18th, 2005 | by mbhunter |This article on MSN.com — Oil Spike Won’t Cause Oil Shocks of Past — didn’t exactly send a cold chill down my spine, but I’d still worry about it.
High oil prices are a tax on our economy. There’s only so much oil. If more people want more of it, its price goes up unless production increases to meet the demand. Production may be running up against a worldwide limit very soon, so we may well look back at the good ol’ days when gas was “only” $2.50/gallon.
People who work away from home will still have to get there. It will cost more to get there. They’ll have less to spend on other things. It’s the spending part that is the focus of our economy’s health now more so than production of things to sell to other people.
The article states that, even though two out of three Americans expect high gas prices to cause them financial pain, “in a lucky break” they’re just borrowing more to make up the difference.
This can’t happen forever. And I’m worried what will happen when (a) people can’t borrow any more to make ends meet, or (b) interest rates rise and they can’t make ends meet.
Financial Carnage! With tougher bankruptcy laws to boot!
Plus a couple of points that are missing in the article:
- True, higher demand indicates economic robustness. But whose? China makes up a lot of that increase in demand, not the US.
- David Wyss, chief economist at Standard & Poor’s in New York, states near the end of the article that “[p]eople forget that energy just isn’t as big relative to the economy as it was 25 years ago[.]” But what industry doesn’t use energy? All industries will be hit by increased energy prices. It taxes everyone.
- The author warns that, since consumption accounts for two-thirds of all economic activity, “[a]ny serious cutback in spending because of the higher gasoline prices could quickly crimp overall economic growth.” Is this a bad thing, though? Maybe saving patterns will get a little healthier if people have to budget for gas that is north of $3/gallon. Frankly, not spending quite so much can’t hurt — “economic growth” based on consumption only looks like real economic growth.
