Fuel Prices and Recession

Well, Gas is soaring once again. I drove by the gas station today and, if I remember correctly, Gasoline was $3.47 and Diesel was $4.17 for a gallon. OUCH!!!

As gas prices have risen at record breaking rates, it has gotten me to think of something that has been on my mind since 2008.

Before I go into detail let me give this little caveat - I am no economist.

When the economy came crashing down in 2008, it seemed that almost everyone was blaming it on the housing market. People were buying houses at extremely inflated prices - and banks were giving out loans to people that couldn't afford them. This was the explanation that everyone was given for why the recession started.

However, I have a little different perspective that is related more to fuel prices than the housing market.

EVERYONE needs fuel. We use it to heat our homes; we use it to drive to work. Businesses use it - Truck drivers must fill their tanks to deliver goods; trains must use it to transport product from one part of the nation to another; contractors use it to get from one work site to another.

The point is - FUEL is used EVERYWHERE. So, with the rising cost of fuel, people (and businesses) have less money to spend elsewhere. Eventually the cost of fuel impacts everything else. The cost of groceries goes up. The cost of parts at the part store goes up. The cost to fly goes up as they tack on extra fuel costs. Even getting something delivered by UPS or Fedex goes up. Everything ends up increasing in price and this leaves less money in our pockets to buy stuff and keep the economy going.

That means that we may look at our car and say, "Well this old car is gonna have to last me at least another year." Or we may look at our checkbook and say, "We are going to cut back on eating out for a while." Or we may decide that buying a new refrigerator and stove will have to wait a little while longer. Or we may even decide that we won't take a vacation this year because we simply can't afford the fuel.

When fuel prices go up it quickly impacts our financial decisions. We have to cut back on spending because we have less to spend. When we cut back on spending we also cut back on contributing to the growth of the economy. When enough people have to cut back on their spending we end up in a recession.

As the cost of fuel nears $4.00 per gallon for gas (and will be $5.00 for Diesel) I grow concerned that this brief economic recovery we are seeing will be short lived.

I don't know about you, but I will be watching things very closely to determine what financial decisions to make and specifically what to do with my retirement funds. In 2008 many people watched their retirement funds drop by 40% or more as the stock market tumbled. I truly hope that we can all see the handwriting on the wall in time to put our funds in more secure places (maybe even under the mattress if need be).

Here is a brief article from dailyfinance.com - Gas Prices Surge Again