At this time a year ago gasoline averaged around $2.98 per gallon and diesel was only $2.72. Oil was trading at $72 per barrel. Oil today is trading for over $140 per barrel. Gasoline today is averaging just over $4.00 per gallon in the United States. Diesel fuel today is still over $4.50 per gallon in most locations. These are facts and not mere speculation.
The longer these kinds of prices stick around, the more this crisis is hitting home for most people. United States drivers are so used to price hikes and drops in gasoline, that the idea of constant $4.00 per gallon gasoline has finally forced them to change their buying and driving habits.
With the exception of Honda, every automobile/truck manufacturer showed breathtaking declines in sales in this country in June. Some, such as Chrysler and Ford showed declines large enough to send chills down the most seasoned experts. In a clear “sign of the times”, Chrysler announced Monday that it was closing the plant in Fenton, Missouri which produced many of its minivans for years. No one ever thought they would see the day Chrysler minivans would no longer be popular.
Who would have thought a little over a year ago that headlines would announce in July, 2008 that the SUV was quickly becoming extinct? Who would have dreamed that in rapid fire succession, each of the giant US auto makers would announce plans to close most assembly plants making even pickups PERMANENTLY? It seems like only yesterday that GM, Ford and Chrysler couldn’t sell a small car to anyone. Now they are all making a mad dash to develop and make hybrid vehicles which get good gas mileage.
For those who say the high cost of fuel hasn’t greatly affected most Americans; why else would there be the dramatic changes we are seeing out of Detroit? The longer gas prices stay high, the greater stress is put on the average family’s budget. When every trip to the gas pump results in an outlay of $50-100, the grim reality of this crisis rears its ugly head. For those families stuck with a SUV, a pickup and a minivan; this reality has been the trigger to cause the mortgage crisis to balloon as it has.
Recently we looked at our personal financial situation. Our income is 100% flat. We have no more income today than we had three years ago. Not only have energy prices spiked within the past three years, many items tied to energy prices have spiked also. The price of food has dramatically increased as well as food for our horses and dogs. For the first time in many years, our electric cooperative had to dramatically increase rates in April. Living in an all electric house meant a huge increase in the monthly bill.
We used to have a fairly nice mutual fund account with along with two small Roth IRAs. As of yesterday, the mutual fund account had lost EVERY penny it had gained the past three years just since January. It now has in it exactly what was originally invested in it back in 2005. The two Roth IRAs have LOST value and are worth less now than when started and added to over the last few years. These were balanced and very conservative funds.
So, here we sit with the same income as in 2005, the same amount of savings as in 2005 (no gain) but the cost of just about everything up 20-100% since 2005. Guess what? We are hurting and in trouble. We have cut back where we can. We have moved out of the upstairs of our home to save the electricity of cooling it this summer. We have parked the two gas guzzling vehicles I used to travel all over the country in and try to drive our Corolla whenever possible. We have cut the horses feed as well as the dogs.
We try to eat from our stash in the three freezers in the garage, especially meat. We only go out to eat once every six months instead of once a month. We cut the cable to bare minimum. We make no trips other than those necessary to work, go to doctors and shopping locally. We have cut back wherever we can and still we keep falling further and further behind. When the cost of living keeps going up without a corresponding rise in income; the resulting shortfall in available funds quickly reaches a crisis point.
We are not alone in this predicament. Millions of other Americans are reaching the point where they must see either an increase in income or a dramatic decrease in the cost of energy and food or they will break. Add into this mixture the incredible drop in stock prices and the resulting wasting away of profits from mutual funds and retirement accounts, and there are all the ingredients for the perfect storm of economic disaster.
Unlike the early 1970’s when wages increased as quickly as prices, and the resulting inflation just about killed this country; amazingly there has not been the hike in income the past six months to match the incredible increases in the price of everything. Truckers have “eaten” the high cost of diesel to stay competitive. Retailers have held the line on prices and seen less profit to stay in business. Americans have tried very hard to not allow the explosion of energy/food prices to ignite a round of inflation which would destroy the economy. But, how much longer can this happen?
Soon, unless the price of fuel drops dramatically, the price of just about everything will increase radically. This is called runaway inflation, and we are at its very doorstep. Businesses, companies and individual contractors of all types have done their best to not raise prices; but the stark realities of $4.00 gas and $5.00 diesel are starting to set off the chain reaction of inflation that was sure to come. Hold on and pray for the best as the coming economic hurricane blasts ashore in this country and blows away thousands, if not millions of households in a wave of runaway inflation.