Friday, June 27, 2008

$200 oil and $7 gas ... oh my!

So, this WSJ blog, refers to "the latest gloomy forecast from Jeff Rubin at Canadian brokerage CIBC World Markets .... $200 oil in 2010, with gasoline at $7 a gallon. And that is going to turn Americans into car-shunning Europeans once and for all—poor Americans, at least"
The poor will be screwed, once again!
A comment, by a Joe Ballard, is pretty interesting, and ariculates a hypothesis that I too have been postulating for a while:
So let’s play it all out according to these assumptions. $7 a barrel translates to 10 million fewer cars on the road which leads to more people taking mass transit and moving to urban areas, where transit makes sense. I see the affect of this migration being extremely contractionary for consumer spending and therefore the overall US economy.
Today it’s easy to fill your car up with unneeded consumer products when out running errands. What will happen when people start taking the bus and train? I would think pure logistics of carrying your typical Costco load onto a bus will limit daily spending to pure necessities. Even the smaller urban space you would now be forced to live in will constrict what you fill it with, right? What about diminished tourism as a result of high oil? Won’t that decrease overall consumption?
My point is that higher oil can only shrink our consumption and therefore our GDP…at least for the near term. This contraction WILL have a ripple affect on the rest of the world. Unlike Europe (which he tries to draw parallels with) we are the world’s consumers
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