Longer Recession With Gas Prices Over $4 A Gallon

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Recession Started When Gas Prices Were $4 A Gallon

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Los Angeles, California ⎮Friday March 11, 2011 7:00am

In late 2008, at the start of the recession, we found big banks starting to fail due to the unregulated greed of many in the banking industry brought on by bad loans, faulty loan products, and the an economy built using loan money that couldn't ever be paid back.  Oil prices rose in part due to speculators as they took large amounts of investment funds out of the banks and put it into a commodity called oil, making oil a source of income by hedging the price.  In 2011, the world economy is showing signs of improvement since the start of the recession, but we find gas prices at the same all time high for the second time during this short period of time. 

The reasons for the soaring prices are different this time around.  Many of the oil producing countries are doing their best to slow down a people's movement that is rejecting dictatorship governments hoping to change their country into a better place for themselves.  While the revolution moves from one country to the next, the price of oil has been going up and over $100 per barrel this week in the commodities market.  With the decrease in oil production due to civil unrest in many oil producing countries, this commodity's price is again part of speculation due to the unknown available quantity of the future supply.

Within the Los Angeles area, the highest octane gasoline is now priced over $4 per gallon.  While the increase itself is not great over what prices have been over the last few months, it is more of the psychological price increase level in the consumer's mind of $4 per gallon gasoline that is the real issue at hand.  Today it was reported that Consumer Sentiment is at it's lowest levels in five months all due to the price of gasoline.  Increase the cost of one item that you must purchase and people start to budget, plan, and save to have enough to pay for gas.  You no longer spend money for other things in the same way as you did before, you look for ways to save at the grocery store, you become thrifty and rent a movie instead of going to the theater, you eat out less by planning dinners at home, you buy one less iTunes Song DVD CD BD, you buy apparel instead of jewelry, you wish for the day when gas goes back down to $2 per gallon so you can go out for lunch instead of paper bagging it, the list is endless.

Are we heading to another downturn and a continued recession?  The U.S. Government and Stock market give mixed answers.  The Stock Market is up to almost pre-recession levels.  But in December 2010, we find the highest level of Home Loan Defaults since start of recession.  There was a slight decrease in total number of those on unemployment in February 2011.  But there is an increase in first time jobless claims for unemployment for the first week of March 2011.  Banks are now showing billions of dollars in profit.  Sallie Mae and Freddie Mac are losing billions of dollars due to bad home loans created by those unscrupulous bankers before 2008.

American Working Class people greatly influence the direction of the nation's economy.  So many hard working Americans were sold bad loans by the banks.  The banks made billions from the fees and interest while servicing these horrible products.  Those who lost their homes fueled the recession’s strength and continue to curtail spending while the whole country suffers along with them.  Lower their confidence and the “Paradox of Thrift” comes into play.  The working class spend less to save money in case things get worse, but they end up hurting themselves as there is less work activity caused by their own savings.  Less money flows into the economic engine and production is decreased in all markets.  Spending less in an economy dependent on retail consumer goods sales supports a longer recession.  Spending more money on energy takes money away that could be used towards products that would help the recovery and bring about an economic upswing.  High gasoline prices are not a positive factor for this fragile recovery.