Gasoline About To Reach All-Time High Of $4.11

Regular gas prices are only three pennies short of $4, according to the closely followed AAA gauge of national daily averages. But, $4 may not be the threshold that eventually turns the halting advance of consumer confidence to consumer fear.

The headline that many people do not expect is that gasoline prices are about to hit an all-time high in the US. That number is $4.11. It was reached on July 17, 2008 as crude moved toward $140 a barrel.

The last time that gas moved over $4 the economy was in the process of disintegration. Gas prices can hardly be blamed for that. A housing and credit crisis had already begun as people and companies “deleveraged,” a word coined to describe a nation in which defaults became common both among homeowners and businesses which borrowed beyond their means.

Many experts believe that high gas prices will not hinder the current recovery. They reason that people can cut back driving, that more cars are fuel-efficient, and that tax cuts have put more money into people’s wallets. Those reasons are true until they are not, and the tipping point may already have happened. There is early data indicating that people have begun to drive less. That means little to people who have to drive to do their jobs, shop, and transport their children to school and soccer practice. These Americans number in the millions, and most have not had a raise in years as the damaged economy has made it difficult for many companies to increase employee compensation. And, there are, of course, some firms that have used the recession as an excuse to keep worker pay low.

No one can tell when gas prices will erode consumer confidence because everyone admits that it will not happen all at once. The poor who live at the poverty line and need to drive have almost certainly been pushed into untenable financial positions by rising gas prices. Many middle class drivers will get there soon enough. For some of them deleveraging is not over. They still have high credit card bills and mortgage payments to be made on homes which have lost 50% of their values.

The problem that faces the economy now is not whether gas will reach $4 or $4.11. It is how long the prices stay there. Americans may be able to weather a short period of high gas prices, though if it lasts for months they are in trouble.

Douglas A. McIntyre