There's an App for That! With Rising Gas Prices get GasBuddy

As a result of ongoing geopolitical tensions with Iran, as well as a refinery fire in the State of Washington temporarily reducing supply, it is not surprising that the price of crude oil continues to trend higher.  Since the end of September the price of a barrel of oil has increased by over $30.  And when oil costs more, so will the price of gasoline at the pump.  Shown below is the inflation adjusted price of gas since 1980. 

As you can see, gasoline prices with a couple of exceptions have never been higher than current levels.  Average gas prices are currently $3.59 per gallon and they are expected to top $4.00 per gallon soon.  

So how do rising gas prices affect us?  Not surprisingly, rising gas prices have a cascading affect of negative consequences. 

1. A 10 cent rise at the pump removes a whopping $11 billion annually from consumers wallets leaving less available for other goods and services.  And as you know, current gas prices have increased significantly more than 10 cents a gallon over the past few weeks. 
2. There is a direct inverse correlation between rising gas prices and consumer confidence.  Historically when gas prices have risen significantly in a short time period consumers become significantly more pessimistic.  When they're asked, "Is the economy headed in the right direction?" a majority of them will say "no."
3. When the public becomes pessimistic they get into a "hunker-down" mentality and spend even less than is actually warranted. 
4. Those businesses that are inordinately susceptible to rising gas prices will be affected the most: trucking companies, public transportation, the auto industry, the airlines will all be adversely impacted. 
5. Of course it's a political liability for both state and national politicians of both parties when prices rise at the pump.  But during a presidential year it makes for lots of political hay.  It's no surprise that Republican presidential candidates are blaming the Obama administration about rising fuel costs.  The reality is that presidents can only marginally affect oil prices with their energy policy and usually that takes years before the impact of their decisions are felt.

So the big question is, "How will rising gas prices affect the economy? Although it's hard to believe, the U.S. economy has had 11 consecutive quarters of positive growth.  But rising fuel prices may have a dampening affect on our fragile economy.   Personally, I believe our economy is resilient enough to weather the impact of rising fuel prices.  But a lot of it will have to do with our perception of reality.  If we can remain cautiously optimistic we will get through this.  

On a personal note I was introduced to a free application for my iPhone called GasBuddy.  It monitors all the local gas stations in your immediate area and shows you which gas station has the lowest gas price.  I saved 27 cents a gallon by going to the Fred Meyer gas station on Imbrie Drive instead of the gas station I normally get my gas from.  That's a savings of over $4.00 per fill up.  Not bad for a free app!

Sources: Gasoline (Inflation Adjusted), by Chart Of the Day, February 24, 2012; How Gas Prices Affect The Economy, by Financial Edge, May 24, 2011, Global Tensions put Gasoline Prices in Overdrive, Post-Gazette.com, February 24, 2012; How Gas Prices are Affecting Consumers; ABC News Blogs, by Zunaria Azki, February 24, 2012.

The Fox & The Scorpion

I recently read a short article by John Stossel of Fox News regarding the enormity of the federal deficit. We’ve all heard news stories about the U.S. debt crisis but for most of us, me included, it’s hard to grasp the magnitude of the problem. So here goes:

Imagine that there’s a family that earns an income of $21,700 a year. But this family spends $38,200 a year. The annual difference between income and expenses of $16,500 is added to their credit card debt. This family has been spending more than it brings in for many years and currently the outstanding balance on their credit card is $152,000. The interest expense on their credit card alone now costs them $4,540 annually or about 21 percent of their total annual income.

The family finally recognizes they have a serious financial problem that cannot go on indefinitely so they sit down together to determine what they can do to balance their budget. After much consideration and wrangling between family members they proudly propose cutting $385 from their spending and declare their efforts a success! It makes no difference to them that a cut of $385 is a pittance of what they need to cut in order to balance their budget. A year later, to their surprise, they actually tally the numbers to discover they spent $362 more than the previous year.

We are them! If you add eight zeros behind each of the numbers identified above that is the situation the U.S. government now faces:

The saddest part about this whole mess is no one who has the power to do anything about this seems to take this situation seriously. I believe the American public thinks that some how we’ll muddle through, that we can just borrow some more money from the Chinese if we need to or if absolutely necessary we can print more money to avoid any embarrassing economic catastrophe. Our day of reckoning can be postponed but it cannot be avoided.

Future generations will look back at us and wonder, “What were they thinking? Where was the leadership needed to avoid this economic crisis?” And before you think I’m going to only lambast the Democrats for profligate spending think again. They may talk a good game but when it comes to spending the Republicans are just as bad as the Democrats! A pox upon both their parties! Together they have spent money like drunken sailors! I know of no politician today who is willing to sacrifice his incumbency to do the right thing. Because believe me when I say this: any politician that is successful in turning this around will be voted out of office in the next election (think the recall of the Wisconsin governor). He or she will be vilified for doing the right thing because those who are feeding at the government trough will not go away quietly. They cannot be reasoned with. They will fight to the death to keep getting their government benefits (think Greek riots).

It reminds me of the story of the fox and the scorpion. The scorpion asks the fox if he can hitch a ride on his back in order to get across the river. The fox says to the scorpion, “But if I carry you on my back what will prevent you from stinging me.” The scorpion replied, “Why would I sting you, we’d both drown.” So the fox says to the scorpion jump on. Half way across the river the scorpion fatally stings the fox. The fox says, “Why did you sting me, we are both going to die.” The scorpion says, “Because it’s in my character to sting you.” And they both drown.

Those who are selfishly gorging themselves on government benefits, whether it’s the retiree who is receiving Social Security checks that are 4 times what he’s paid into the Social Security system or whether its corporate welfare in the form of tax breaks for the multinational corporations and everyone in between, don’t care what they are doing to this country as long as they get their’s. They are the scorpion who kills their free ride not realizing if everyone acts like they do that we’re all going to sink in our country’s enormous debt.

Is anyone listening to me? Does anyone care?

Sources: Dangerous Debt by John Stossel, January 5, 2012; Interest Expense on the Debt Outstanding, treasurydirect.gov