Posted on 07/10/2006 9:43:52 PM PDT by bruinbirdman
When the Fed frets over high oil prices, the stock market reels. The real numbers, though, tell a happier story.
In early June Federal Reserve Chairman Benjamin Bernanke spooked markets worldwide with fears of energy-fueled inflation. With its latest interest-rate increase a few weeks later, the Fed hinted those fears may have passed. Indeed, the economy seems to have handily absorbed a sevenfold increase in oil prices since 1999. "If it was gonna bite it would have bitten harder by now," says Alec Young, strategist at S&P Equity Research Services.
Even with oil's startling surge, from $10 a barrel in 1999 to the $70 range lately, the resulting rise in gasoline prices has had nowhere near the impact of the last oil crisis, back in the early 1980s. Gas was at 7.2% of consumer spending 20 years ago--but it is at only half that rate today (3.7%). As a slice of the U.S. GDP, gasoline is down by a third, to 3%.
Nor is growth a problem. Industrial production in May was up 4.3% over a year ago, and capacity utilization is at 82%, above the historical average. Corporate profits keep growing despite the oil inflation that was supposed to roil business. Companies in the S&P 500 have racked up a record four years of up earnings and look to increase profits another 12% this year.
One key: This time around oil prices have risen at a slower and more stable pace, says Hillard Huntington, director of the Energy Modeling Forum at Stanford University. In the Arab oil embargo in 1973 prices more than doubled in three months. That spread economic mayhem because makers had to seek new efficiencies even as sales slumped.
"The unexpectedness and the inability of people to adjust quickly caused problems," says Huntington. "And I don't see that happening in this economy."
The bigger threat today: an overreaction by Bernanke (rhymes with "Cranky"). "If you're so bent on an anti-inflation policy, then what you're willing to do is sacrifice economic growth and employment to prevent price increases," says Douglas Bohi, an energy policy expert with CRA International in Washington. And that would be bad--far worse than the rather innocuous ills wrought so far by oil's escalating cost.
"I don't believe your extremist rhetoric, mainly because I have seen NO decline in the number of gas-fueled vehicles on the roads."
Could it also mean that consumers have no other option? I mean how are you going to get to work? Get groceries?
Households may cut back on driving vacations, but they are still going to drive Susie to soccer.
So what you do is keep loading up the credit card which the public is skilled at and the $3.25 a gallon is not a real price that has to be faced.
I think if these prices stay like this, there will be some strong negative effects within a year regardless of what the "experts" tell us.
What "energy crisis" are you talking about?
Which oil companies posted a quarterly loss in the last 20 years?????
Do I detect some class envy in your post? You could buy oil company stocks you know.
People are still getting to work, and still getting groceries, at least in my neck of the woods.
So how is it "killing' this nation?
Bottled WATER, for cryin' out loud, costs in the same ballpark as gasoline. People are still buying it.
Ooooh! Class envy....
Been listening to Rush?
It's not class envy. It's disgust at the way Americans now view their fellow Americans - "I got mine. Too damn bad if you are not as good as I am!!!"
The idea that people buying gas guzzlers doesn't affect the rest of the citizenry is pure, unadulterated arrogance. It's not just gas prices. It's home heating oil, propane and natural gas.
The same goes for people building 5 or 6 thousand square foot homes when they only have one or two children or even none. To hell with what that does to energy consumtption. Not just oil either. Electricity has to be produced to light and cool those homes.
But, your are right. It's class envy.
I rather think it's more class disdain from those that are wealthy.
Selective Reading.
See my post #26
And what will bring the price of gold down?
This is very different from the attitude - "I'm not happy with mine, so I'm taking yours because you are not as good as I am!!!"
The bottom line isn't all gasoline. Those that market gasoline are integrated, with various profit centers contributing to the bottom line.
If they're not making any profit on the gasoline, they sell some leases or production; sell lots of petrochemicals and plastics feedstocks; pay less money for new leases or don't buy any at all; rent out their equipment; do farmouts and partnerships on operating some new leases or drilling new wells.
There are lots of ways to offset their losses on selling their own production or their refined gasoline. Point is, however, that they shouldn't have to.
There was a black woman on GMA this morning talking about how much the increase in gasoline prices has impacted her family - that they spend hundreds of dollars per week on gas. Their kids have school and lessons after school and all kinds of activities.
Then she got into the most enormous SUV I have ever seen - like the size of stretch limo, practically. Diane Sawyer, or whoever was asking the questions, said something about selling that huge car - she said they can't because her whole family is large! (They were - everyone in the very hefty range, perhaps 300+ lbs. or over)
Truly, I had never thought about needing a big car because of the room we take up *in* it.
What a disingenuous post. I never said anything about taking from others. Playing the straw man card again.
Also, I see you called on the "I got mine" crowd.
That's terrible! People with money buying the things that they want. What, do they think this is America?
Maybe a new activity should be walking to the grocery store?
On a side note I watched an MSNBC special last night about government taking kids from families. It took place in south Indianapolis. When they were in the courtroom everyone was obese except the father that was accused of hitting his stepdaughter. I swear they were ganging up on the guy just because he was thin.
Correct. The baseline price-per-barrel back in the late-90's was more on the order of $18 to $25. The $10 figure was a relatively short-term drop and should't be used as a baseline for comparison.
I never said that you said anything about taking from others either, but just the same enjoy your self-superior position. A friendly warning though, from personal experience I'm telling you that being full of one's self is not nearly as much fun as others seem to make it out to be.
*Jack Sprat could eat no fat; his wife could eat no lean.*
My mouth was hanging open, thinking about paying a minimum of $800 per month for gasoline just because "we're big people."
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