Gasoline Price as an Economic Indicator

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Tortoise
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Gasoline Price as an Economic Indicator

Post by Tortoise » Sat Jun 16, 2012 4:53 pm

A while back on this forum, a few of us discussed the fact that gasoline prices historically have tended to increase noticeably prior to recessions. At the time, I had the Austrian mindset that the high gasoline prices just prior to the recessions were likely more of an effect than a cause. Specifically, I thought that both the run-up in gasoline prices and the subsequent recessions were caused by the same thing: a speculative bubble.

However, MT took an interesting alternate viewpoint that because our modern economy is completely dependent on fossil fuel, high gasoline prices might actually be what causes the economy to fall into a recession--or, if a bubble exists, expensive gasoline might at least be the pin-prick that finally bursts the bubble.

With that in mind, I've been following gasoline prices with great interest ever since 2008, when the prices rocketed up and then promptly crashed to amazing lows just as quickly. And I noticed that gasoline prices have been rising since November of '08, recently coming surprisingly close to the '08 peak on a couple of occasions. Since the price has been rapidly declining since May after one such near-peak, I'm wondering if the high price has once again tipped the economy into a recession.

It'll be interesting to see how this all plays out in the coming months. If the gasoline price continues to drop very sharply like it did in '08, and if the economy simultaneously slides into another recession (with the obligatory financial panics, etc.), I just might be converted to MT's point of view since I don't think there are currently any obvious speculative bubbles that would explain it.
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Re: Gasoline Price as an Economic Indicator

Post by Storm » Mon Jun 18, 2012 1:11 pm

I think oil price is generally a trailing rather than leading indicator of economic boom/recession.  However, I could definitely see high oil prices in the context of a housing crash, especially as complete suburban McMansions cities were built.  It seems much of the speculative bubble or malinvestment (as Austrian economists call it) in housing was building huge houses in an era of cheap energy that were simply too far away from where jobs were, too large to heat/cool, and selling the American dream that quickly collapses when you realize that it requires 25% of the median income to pay the energy costs to support it.
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Re: Gasoline Price as an Economic Indicator

Post by Gosso » Mon Jun 18, 2012 4:11 pm

I see increasing gas prices as an added tax to both consumers and producers.  This tax will go to the producers of oil and gas (ie foreign countries).  In a perfect world the added tax is necessary to offset the increasing costs of production, but more than likely the costs are increasing at a fairly steady rate (with inflation), which means the added tax will create windfall profits, and can be used to payoff debt or invest in new projects.  So unless this tax is recycled back into the local economy then that money is effectively destroyed (at least in the eyes of the gas/oil consuming country).  This means less money for us to buy widgets and bid up home/stock prices.
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Tortoise
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Re: Gasoline Price as an Economic Indicator

Post by Tortoise » Wed Jul 04, 2012 4:17 pm

Gasoline prices are still going down, down, down. The last time the drop was this steep was in mid-2008 at the start of the sharp recession.

Might this indicate that we're about to start seeing a lot more news stories in the coming weeks about financial crises, bankruptcies, and business contraction--much like we did in mid-2008? The latest scandal at Barclays and the two municipal bankruptcies in California this past week (Stockton and Mammoth Lakes) are a few possible examples to support this hypothesis.
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Re: Gasoline Price as an Economic Indicator

Post by hoost » Wed Jul 04, 2012 5:11 pm

It wouldn't surprise me if we are going into a downturn.  We are already starting to see operators stack rigs due to the low [natural] gas prices down here.
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Re: Gasoline Price as an Economic Indicator

Post by MachineGhost » Thu Jul 05, 2012 5:13 am

Tortoise wrote: Might this indicate that we're about to start seeing a lot more news stories in the coming weeks about financial crises, bankruptcies, and business contraction--much like we did in mid-2008? The latest scandal at Barclays and the two municipal bankruptcies in California this past week (Stockton and Mammoth Lakes) are a few possible examples to support this hypothesis.
I must be out of the loop, but what happened with Barclays?  Mammoth Lake I can guess.

We've been due for another recession for a while, but the stock market seems to be ready to kick off another rally as of this week.  Maybe we'll see a divergence between the economy and the stock market that was the modus operandi historically.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: Gasoline Price as an Economic Indicator

Post by chrish » Thu Jul 05, 2012 6:17 am

MachineGhost wrote: I must be out of the loop, but what happened with Barclays? 
They were caught fixing the LIBOR rate by lying about the rates they could borrow at. It's been a big story here in the UK. Bob Diamond resigned a couple of days ago and was hauled in front of parliament to explain himself yesterday.

http://www.bbc.co.uk/news/business-18685040
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Re: Gasoline Price as an Economic Indicator

Post by smurff » Fri Jul 06, 2012 2:27 am

I watched the Barclay's hearings before the UK parliamentary committee on July 4.  Bob Diamond has an accent from the Americas (USA or Canada--I haven't gotten around to checking out his national origins), which adds an additional note of nationalist interest to the Barclay's scandal. 

What was really interesting during the hearings, however, was how he kept calling the members of the committee by their first names when he responded to their questions, like he was bosom buddies with each of them.  From what I remembered, they did not call him by his first name; he was always "Mr. Diamond."  I kept thinking how in another venue that might be sweet and quaint, but in this venue (and under these circumstances) it somehow seemed perverted.  Sort of like he was exercising his power and authority over them.
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Re: Gasoline Price as an Economic Indicator

Post by Tortoise » Thu Jul 12, 2012 1:41 am

A third city in California has now filed for bankruptcy. That's three in less than a month. Also, the LIBOR scandal appears to be spreading. Great Recession #2?

Gasoline prices are still going down.
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