I started bracing for the gas price increase that was most assuredly coming after the oil spill disaster in the Gulf many weeks back. But as I stopped at the gas pump just this morning, I noticed something very odd. Gas prices seem to be holding up pretty well; in fact it was $0.25 cheaper today than when I filled up not long ago. This gave me an excuse to look up how fuel prices have been doing lately.
Historical Gas Prices: 5 Year Average
Prices haven’t jump up, but appear to be creeping up.
So what’s going on here? You’d think that with the raging oil slick in the gulf, the war on terrorism AND the summer driving season finally upon us, we’d be seeing a little more upward pressure on gas prices. The fact that they are still fairly under control seems to defy what I understood to be as the laws of gas price logic. I couldn’t help but think about the European sovereign debt crisis that’s been bubbling as of late.
For a little bit more evidence of what’s going on, you can check out some charts here. Or take a look at this historical gas prices chart from GasBuddy.com: here’s a snapshot of the average price of gas in the U.S. over the last 5 years. Click the image for a clearer view.
Does this have anything to do with the European debt crisis? I have been following the consequences of the current financial crisis in Europe. About what Greece’s insolvency would mean to us as well as what would happen if Spain followed suit. It dawned on me that this and other things have contributed to our recent stock market fallout.
Life in Europe looks a lot like it did in the U.S. in recent years. The stock markets are in turmoil. Companies whose net worth is measured in euros are starting to lose value due to the de-valuing of the currency, which is hitting our stock market pretty hard. And, the price of energy, oil more specifically, may drop due to the fact that the Europeans can’t buy as much of it as before (it’s back to the de-valuing of the euro thing) and there is more of it on the market. Supply and demand…it’s simple economics here.
Gas Prices As An Economic Indicator?
Remember the time before the financial crisis hit when we were paying stratospheric prices at the pump? Back then, I remember being sick of high gas prices. Well, as much as it pained me to go to the gas pumps then to pay between $3 to $4 per gallon of gas, those increasing gas prices signaled a strengthening economy. I simply gritted my teeth and thanked my lucky stars I never bought an SUV (don’t you just LOVE 4 cylinder cars right now?).
But now that we’re seeing gas prices possibly moving in the other direction, I’m wondering if this could portend changes in the economy. If gas prices continue slipping in the other direction, could this spell the beginning of the second (or third) cycle of disaster for our economy?
We’ve seen before that those banks that are on the brink of failure all had their hands in the cookie jar of what could easily be identified as the worst economic crisis in U.S. history…even eclipsing the Great Depression when it’s all said and done.
Economic experts who watched the credit freeze occur in the U.S. after the collapse of Lehman Bros. in 2008 are predicting the same type of response in Europe if the debt crisis escalates. We can see that bank failures and losses backed up by the failure of the economy of an entire country can become too much for any financial institution to bear. This time around, we can expect a new credit freeze because existing banks will be afraid to lend money and U.S. goods could ultimately prove to be too expensive based on the sliding purchasing power of the euro, leading to less money being available for U.S. exports (case in point: oil).
The really bad news is this: not only are the 16 countries that comprise the eurozone slowly dragging themselves out of the last global recession — you know, the one we are trying to recover from — but they also house the second largest economy on the globe. That means that what they do (and don’t do) will affect each and every other economy on the planet. For instance, when they slow down car imports, this will affect every major car exporter in the world, slowing sales and reducing profit. Production will slow to mirror demand, which will affect the smaller manufacturers and so on. The current situation in Europe could easily signify the onset of a next wave of recession (or worse) for the world.
So, enjoy your cheaper tank of unleaded today, but remind yourself to take stock in lessons learned and ferret away money for a rainy day…It looks like we may need it.
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