There’s a bad moon on the rise – in the form of upward creeping gas prices.
Unleaded regular is surging toward $4 per gallon again – the same highs that preceded – and which arguably triggered – the current economic catatonia. If it happens again, though, the effects are probably going to be even worse. A man on his feet can usually take a sucker punch, or at least recover from it. But if he’s already on the ground and you kick him in the head, he’s done-for.
$4 per gallon gas could do exactly that to the U.S. economy – what’s left of it.
This time, unlike last time, unemployment is already nearly 10 percent (closer to 20 percent, if you go by the old way of measuring that includes people who’ve stopped even trying to find work).
This time, unlike last time, our “too big to fail” industries – including the car companies – have already failed once and it’s doubtful the government (excuse me, the Fed) can print more funny money bailout bucks without triggering either a currency devaluation or runaway inflation, maybe both.
$4 per gallon gas is going to mean a lot more than just paying an extra $15 to fill-up the car. It will mean everything is going to get proportionately more expensive, from the food on your plate to the stuff down at the mall. The tag-team of rising fuel costs and increasingly worth-less Federal Reserve Notes could seal the deal this time.
People who weathered the first crisis don’t have the reserves built up to handle Round Two.
Frosting their already precarious balance sheet with another $100 per month – just for gas, not counting higher prices for everything else, too – will push many of them over the edge.
Expect unemployment to crest 10 percent – “officially” – and possibly 20 percent in the real word.
Ford is ok right now – and GM at least has a pulse. But neither can survive a repeat of the crisis of 2008, which was sparked by $4 per gallon fuel, which in turn caused millions of people to say sayonara to their V-8 SUVs, formerly the golden calf of the U.S. car industry.
The industry has come about, ditched SUVs as their profit center and worked feverishly to bring forth new economy cars and also next generation hybrids and even electric cars. But the fly in the pie is that unemployed people – or people fearful of becoming unemployed – do not buy new cars anymore than they buy new houses or new anything. If 10-20 percent of the American public is out of the game already – and the next 10-20 percent is sweating bullets about their financial situation and wondering whether they’ll still have a job next month – imagine what that’s going to do to new car sales. And what that will do to the car industry.
And what that will do to the economy.
Think about the millions of suburban communities with houses whose value has already deflated by 20-30 percent, in part because people stopped buying houses an hour’s commute from their jobs. These communities – and 1-hour commutes – were viable when it only cost $30 to fill up. But when your monthly fuel bill becomes a second mortgage and you’re also paying 10-20 percent more for everything from food to utilities, a condo in the city seems a lot more appealing.
Wave goodbye to the ‘burbs. To quote Don Corleone: They are going to sleep with the fishes.
Bottom line – I doubt the country can take $4 gas. It almost dropped the curtain last time – and last time, we had jobs, equity in our homes and 401ks, things to fall back on. Now, we’re facing a repeat with our backs already up against the wall. There’s nowhere to go and no help in sight.
If you haven’t taken some steps to prepare for what’s coming, understand that time is short.
Batten down the hatches. It could be about to get rough.